A loan can be a great way to finance your large and small expenses.
In the past, borrowers were stuck with a small selection of high-interest credit options from financial institutions or credit unions. Nonetheless, an increase in people's understanding of financial matters has led to a rise in the demand for loans that are affordable and can meet all immediate needs.
As a result, new types of loans, such as payday and personal loans, were created to suit the unexpected requirements of the borrowers. Different factors, like the interest rate, length of the loan, and other factors set one apart from the other.
Personal loan
Personal loans are among the most flexible financing options available in market, which do not require any collateral or security. These loans do not have end-use restrictions and can be used for almost any purpose. For an instance, you may use a personal loan for renovating your home, paying medical bills, planning a dream wedding, or consolidating your debts. Lenders look at your credit history, income, and other factors before approving a personal loan. The approved funds must be repaid by the borrower over the pre-set tenure, typically with interest.
Personal loans come with a host of benefits including quick disbursal, flexible tenure options, minimal documentation, and no hidden charges. You can also use a personal loan EMI calculator to know your monthly EMIs in advance. It can also help you figure out what payment amount and interest rate will work best for your budget.
Payday loan
Payday loans also known as "advance cash" are short-term, unsecured loans that provide funds instantly. People borrow pay day loans to manage their monthly expenses until their next salary gets credited. Pay day loans are meant for the working-class who may sometimes find it difficult to meet their monthly expenses. The loan amount is typically based on how much you earn per month, and you must provide your pay slips when applying for one. These are great for unexpected costs that need to be paid right away. Payday loans charge a very high-interest rate as it has a higher repayment risk.
Let us understand the distinction between a payday loan and a personal loan. It will help you make a better long-term financial decision.
Payday loan vs Personal loan
Loan amount: Personal loans are available with larger loan amounts. Although the maximum loan amount differs from lender to lender, with a Bajaj Finserv Personal Loan you can borrow funds of up to Rs. 40 lakh.
Payday loans are of a smaller amount, usually ranging from Rs. 5000 to Rs. 2 lakh.
Tenure: The tenure of a personal loan is usually much longer than that of a payday loan. For instance, Bajaj Finance offers a tenure ranging from 6 months to 96 months. On the other hand, payday loans must be paid back between two and four weeks after the borrower gets the advance.
Documents required: When it comes to personal loans, you must submit KYC documents, bank statements, evidence of income, and other documents to verify your eligibility for the loan. Payday loans require the applicant to submit their pay slips and meet the basic requirements by the lender.
Credit Score: Payday loans and personal loans are very different from each other when it comes to credit score. Payday loans usually do not emphasise on the credit score. Payday lenders do not report to credit bureaus, therefore getting a payday loan does not affect a borrower's credit score directly.
Contrarily, borrowers who make their personal loan payments can enhance their credit score through timely repayments.
Payday loans are more expensive and riskier for the lender than personal loans. With a personal loan you can borrow a higher loan amount, which you can repay over the longer tenure at a comparatively lower interest rate.
Bajaj Finance provides personal loans of up to Rs. 40 lakh which can be disbursed into your account in as little as 24 hours*.
