A bank’s loan approval process takes time – typically weeks (or even months in the current economy). So if you need cash fast, a bank loan is not for you. Bank loans work better for planned expenses than for unforeseen financial emergencies. A payday loan, on the other hand, means the loan will be approved quickly and you can have cash in your checking account in as little as 24 hours.
First of all, you should know your credit score. The bank certainly does. Your credit score will play a large role in any bank’s decision about your loan application. If you have bad credit, it may be impossible to obtain a loan through your bank. On the other hand, payday lenders don’t look at your credit score. They only verify that you have a steady, reliable source of income to determine whether or not to lend you money. If your credit isn’t great but you have a steady job, a payday loan might be right for you.
Payday loans tend to be for smaller amounts, usually a few hundred dollars up to around a thousand dollars. The amount you can borrow certainly won’t exceed the amount of your next paycheck, because this is the money that the payday lender is counting on for repayment. If you have an unexpected car repair and don’t have cash on hand to cover the mechanic’s bill, a payday loan could cover the costs until your next paycheck comes in. If you need a new car, however, you’ll have to apply for a bank loan.
If you can get approved for a bank loan, you’ll typically have years to repay the loan and have the option of making very low monthly payments. This is convenient because you know you have time to repay your debt. With a payday loan, you usually have a couple of weeks or at most a month to repay the full amount of the loan, plus the interest charged. You have to keep in mind that a large part of your next paycheck will go to pay back your loan, so be prepared to cover your normal monthly expenses and settle your debt in a tight timeframe.
Remember that a payday loan is a SHORT-TERM credit option. Payday lenders charge high interest rates for the convenience of obtaining a quick and simple loan, so these types of loans should be used for emergency expenses only. Rolling over a payday loan can be costly, so plan on repaying it in full with your next paycheck. After answering these questions, you should have a better idea of which type of loan best fits your needs. Consider all your options carefully before deciding if a bank loan or a payday loan is right for your financial situation.