What Is the Difference between Payday Loans and Bank Loans?
When an unexpected bill comes up, you need to turn to your emergency fund to sort it out. Unfortunately, more than 50% of Canadians have less than $1000 in their savings accounts. So, it can only take one unexpected life event for more than 50% of Canadians to be thrown in a serious cash crunch.
If you have little savings and the unexpected happens, you have no other option but to borrow. This is where payday loans and bank loans come into play. Both loans are personal loans that can help you when the going gets tough.
But what is the difference between the two? Read on to find out some of the key differences between a payday loan and bank loan.
What Is a Payday Loan?
A payday loan is basically a short term loan that you can borrow and repay at the end of the month. Payday loans are designed for people who need a little bit of extra cash to see them through to their pay day, just as the name suggests.
However, this doesn’t mean that they are only used for this purpose. In fact, a significant number of people see payday loans as a relatively easy means of getting quick cash whenever they have an urgent bill to sort out.
One key feature of payday loans is that they come in small amounts and attract a relatively high-interest rate compared to bank loans.
But for many people, the high-interest rates are still a reasonable price to pay because it is relatively easy to get approved as long as you are employed. Smart individuals only take payday loans to help them with short term cash flow problems.
What Is a Bank Loan?
A bank loan is basically a type of loan you apply from a bank. There are different types of bank loans for different situations. For instance, a mortgage is a type of bank loan that you can only use to finance a property purchase.
Unlike payday loans, bank loans are much more affordable and can help you realize your dreams and ambitions. You can also use a bank loan to consolidate your existing debts and make the repayment plan more manageable.
Unfortunately, it takes time and a lot of screening to get approved for a bank loan. The bank will take time to conduct thorough background checks to establish your creditworthiness.
Once you have been approved, the loan amount will be deposited to your bank account, and you will be expected to start making monthly repayments once the grace period has ended.
Payday Loans vs. Bank Loans: Which One Is Better?
There is no better option than the other between these two types of loans because they are meant to help you in different situations.
Payday loans are ideal in situations where you need small amounts of money that you are pretty sure you will repay on your next payday. This means that as long as you are employed and have money coming your way in a few days or weeks, you qualify for a payday loan.
You can think of it as a salary advance that you repay with interest. If you have run out of cash and need to sort out an urgent bill before your next payday, this is the right option.
On the other hand, bank loans are ideal for people who want to borrow significant amounts of money to invest in long-term projects. You can take a bank loan to invest in your business, finance assets, or consolidate your existing debts.