There used to be a time when the only way you could borrow money was to visit a lender in person and state your case. Fast forward to the modern day, and the options and ways individuals can borrow money is vast, providing borrowers with almost too much choice. There are still the traditional bank loans, but there are also many other short term options available online that provide smaller amounts and shorter repayment terms if you need them. For individuals looking to borrow money imminently, finding lenders that can match exactly what you need with added flexibility is important. So, do you choose bank loans or do opt for short term payday options? Here are the main differences you’ll need to consider first.
Short term or long term
One of the main differences between these types of loans is the repayment term length you can choose. With bank loans, they typically do not offer short term options for less than 12 months as the products they usually offer are personal loans or similar. As they have a fixed interest rate agreed at the beginning of the term, they usually do not offer repayments for anything less than a year and only for amounts above £1,000. With payday loans direct lenders, there is far more flexibility with repayments as you can choose to borrow smaller amounts from £100 upwards and choose much shorter repayment terms, between 1 to 6 months for example.
In situations where you are low on funds and you need cash quickly to settle an unexpected bill or financial emergency, a bank loan may not be the best option. As you may only need to borrow for a short period to cover the expense, having the option of payday loans can be more ideal and provide the short term finance you need. This way, you won’t have to take out long repayment terms to repay the loan and instead can keep the term short and manageable over a few weeks or months.
It can be frustrating if a loan approval process takes hours or even days to be conducted, leaving you waiting for a decision. Typically, a bank loan can take longer than a payday loan to be approved, so when you need cash quickly, having the option of same-day approval and pay out can be an advantage and help you settle a financial issue without delay. Thanks to the advancement in banking technology over the last decade, the approval process for online loans is very quick and this also includes the checking of credit histories and affordability assessments. So, despite fast approval times, responsible lending guidelines are still adhered to.
Reason for borrowing
Depending on why you require a loan, you will find that a bank loan or a payday loan are suited to different situations. If it is a financial emergency that you have no other means to settle, a payday loan is an option to do so quickly. If, however, your reason for borrowing is less pressing and is to cover a purchase or expense such as a new car, home improvements or even a holiday, a personal loan from your bank is preferable. The reason for this is because a payday loan is there to provide short term borrowing to be paid back quickly, whereas bank loans can be taken out for higher values and longer repayment terms, making them more ideal for bigger expenses. As the interest rates on a payday loan can be higher than a bank loan, this is another reason why they are suited for only when you need them most and not for non-essential spending.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.