Payday Loan vs Personal Loan: Which is Right for You?

Borrowers today can choose from many types of loans to fund their needs. Payday loans and personal loans are, however, more popular than others.

A tricky financial situation can affect your savings, but only if you let it. There are many ways to address a challenging problem, although using your hard-earned savings and redeeming your investments is not the wisest choice. Instead, you can counter the situation by taking out a loan from lenders such as IDFC FIRST Bank.

Whether you want to repay your credit card debt or gift a precious product, you can get a loan for anything from IDFC FIRST Bank. Personal loans and payday loans are popular among borrowers as they can be used to meet any requirement.

What is a payday loan?

A payday loan is a high-interest, unsecured loan that proves especially useful during emergencies. The loan amount is disbursed immediately after it is approved, and borrowers repay the amount when they receive their next salary or income from other sources. Working professionals stand to gain the most from payday loans, as it is designed with them in mind.

Salaried professionals can use payday loans even if they have exhausted their salary at the beginning of a month. This makes payday loans an appealing option, despite their high interest. Common uses of these loans include paying rent, EMIs, and living expenses.

What is a personal loan?

A personal loan is a short- or long-term loan used to fund weddings, renovation, or vacations. Borrowers have complete freedom and flexibility to spend the loan amount. The loan is approved based on the borrowers’ credit score and capacity to repay the loan. It is usually repaid in set monthly instalments over time. The interest rates on personal loans vary from one bank to another.

Payday loan vs personal loan: what is the difference?

There are several differences between a payday loan and a personal loan. A few of them include:

Loan amount

The loan amount of payday loans usually varies from ₹10000 to ₹2 lakhs. Meanwhile, personal loan amounts can begin from ₹50,000 and extend up to ₹50 lakhs.

Lending institution

Almost every lender, including IDFC FIRST Bank, offers instant personal loans. Payday loans, however, can only be obtained online through a few select lenders.

Eligibility

The eligibility criteria for personal loans are comprehensive. Lenders check your credit score, income, credit history and apply thorugh an instant loans app. Payday loans are more flexible. Borrowers with average to poor credit scores can also get a payday loan. Payday loans are made available to anyone with proof of identification, banking information, and a salary slip.

Approval time

Personal loans might be more affordable, but the authorisation process takes time. Payday loans are quicker, as they have a speedy assessment and approval process. The tradeoff, however, comes in the form of the extra fees you must pay on payday loans.

Interest rate

The personal loan interest rate might vary from 10% to 35%, depending on the borrower's profile and the bank's terms. In contrast, the interest rate on a payday loan can range between 30% to 40%.

Tenure

Payday loans have a relatively shorter term. They might last from a handful of days to a year, based on the quantity borrowed. Personal loans last longer, with tenures ranging from three months to ten years.

Personal loans and payday loans are equally beneficial. They may have their drawbacks, but both products are useful for borrowers with specific needs. You should analyse your requirement and then carry out extensive research to figure out the best option for you. Download IDFC First Bank's banking app to get started today!

Advantages of Payday Loans:

1. Quick access to cash
2. Minimal documentation
3. Easy qualification

Advantages of Personal Loans:

1. Lower interest rates
2. Longer repayment periods
3. Positive impact on credit score

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.