Resorting to personal or payday loans is a common alternative for many, but each modality has its particularities in terms of payment of installments and charging of interest. This way, payday and personal loans can meet different needs and economic profiles, one being more advantageous than the other depending on your profile and objective.
That’s why it’s important to understand the difference between personal and payday loans, facilitating your process of choosing the best option. In this article, we will explain the differences to help you know how each one works, its advantages, and which is the best choice. Keep reading!
What is a Payday Loan?
The Payday Loan, or Payroll Credit, is an alternative to the Personal Loan. This loan model is only possible for some profiles, as the payment discount is withheld at the source. It is a short-term loan characterized by high-interest rates and is usually deducted from your next pay.
To access it, you must be:
- A public employee
- A retiree or pensioner
- Or work in private companies with a formal contract
In some places, those serving in the military can also access the loan. The payment of the loan installments will be deducted from your payment source, carried out by your paying source.
What is a Personal Loan?
The Personal Loan, or Personal Credit, is the most accessible alternative to Payday Loans. When using a Personal Loan, it is not necessary to inform the purposes of the money, making it possible to use the credit for any need.
The Personal Loan, as the name implies, is a resource limited to individuals and can be requested in several ways, including banks and digital finance companies, with online approval on the spot.
The loan is also subject to credit analysis, and it is very common for it to be used as an additional resource in debt settlement or for emergency situations. So, even if you have a good emergency reserve, the Personal Loan can be an alternative for other purposes, including investments.
Differences between personal and payday loans
|Personal Loans||Payday Loans|
|You can borrow higher amounts up to $100,000||You can only borrow small amounts|
|Long period until repayment||You are expected to pay in full within a short period. Some even less than two weeks|
|Lower interest rates||Higher interest rates|
|It helps you build your credit score||Can damage your credit score|
|Easily accessible as it is offered by most banks and credit unions||Difficult to access as it is mostly offered by payday lenders|
|Can be paid in installments||You are expected to pay in full when you receive your next cheque|
What is the best option?
The choice between a Payday Loan and Personal Loan varies according to your economic profile, your goals with the money, and your conditions for paying the installments.
Therefore, it is important that you make a personal analysis of the need for the money and which offers the best benefits in terms of credit value, payment time, and interest rates per month.