Bank Loan & Payday Loan: Key Differences

Every person in life has emergency situations when money is urgently needed, and they do not always have the required amount in their wallet. In this case, we start thinking about a bank loan or a payday loan online on a reliable and secure platform like Payday Depot. Many people do not understand the difference between these two concepts, but to find a suitable option, you should compare and familiarize yourself with the concepts of a bank loan and a payday loan.

What is a bank loan?

A loan is a financial arrangement in which a bank or financial institution lends a specified amount of money to an individual, business, or organization for a specified period, often at interest. To obtain a loan, you need to collect the necessary documents, confirm a stable monthly income, and personally sign the agreement or use an electronic signature. There are usually several types of bank loans:

1. Consumer credit. This is one of the most popular types of lending to individuals. It involves issuing money at interest for personal needs.
2. Car loan. This is a targeted consumer loan, the funds from which can only be spent on purchasing a car, which is mandatory to be insured.
3. This is a large targeted loan with a long repayment period, which is usually provided for the purchase of housing.
4. This is a loan without interest, issued for a certain period with mandatory periodic payments.

Bank loans take longer and come with more requirements than payday loans, but there are many benefits. Firstly, complete security for borrowers. All activities of banks are strictly regulated by law, so they will not deceive customers. Secondly, the interest rate in this option is calculated for the year and not daily. Thus, the percentage of overpayment and loss of funds is much lower than in the case of a payday loan. Thirdly, you can take almost any amount of money for your intended purpose and for a feasible period.

What is a payday loan?

A payday loan is a short-term, high-cost loan designed to provide borrowers with quick access to a small amount of money, typically to cover immediate financial needs or emergencies until the next payday. Microloans are divided mainly according to the methods of receipt: by bank card, cash, e-wallet, or mobile phone.

The procedure for applying for a payday loan is extremely simple and fast, which makes this type of lending very attractive to borrowers. It has many benefits. Firstly, you can take out a payday loan at any time of the day. Online services allow you to receive funds around the clock. The transfer will be sent to an electronic wallet or card, so a personal visit to the office is not required. Secondly, you have the opportunity to apply for a payday loan instantly. The application is filled out and processed much faster than in banks. The money is transferred immediately after approval is received. Thirdly, the complete availability of a payday loan despite a bad credit history will not be an obstacle to obtaining this.

Difference between payday loans and bank loans

Payday loans and bank loans are two different types of borrowing with significant differences in terms of their characteristics, terms, and how they are obtained. Here are the key differences between payday loans and bank loans:

• Loan amount. Payday loans are typically small, short-term loans. The loan amount for bank loans can vary significantly, from a few hundred dollars to several million dollars, depending on the type of loan.
• Repayment terms. Payday loans have very short repayment terms, often due within two weeks to a month. Bank loans offer longer repayment terms, which can last from a few months to several decades, depending on the type of loan.
• Interest rates. Payday loans are known for their extremely high interest rates, often exceeding 400% APR. Bank loans usually have lower interest rates compared to payday loans. Interest rates vary depending on the type of loan and the creditworthiness of the borrower but are generally more favorable than payday loan rates.
• Credit check. Some payday lenders do not conduct traditional credit checks, making these loans available to borrowers with poor or no credit. Most bank loans, especially those with larger amounts, require a credit check.
• Payday loans usually do not require collateral. Bank loans may require collateral for mortgages and car loans. Personal bank loans do not require collateral but may have higher interest rates.

(Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)