Know why a Personal Loan is Better than a Payday Loan?

21 August, 2018

Sometimes you just need to get quick money right in the middle of a month and you have already spent your salary on settling house rent, utility bills and co. So, what do you do when the next paycheck is still a couple of weeks away? You take a payday loan — right? Wrong.

Payday loans are quite tempting but there are some serious repercussions that come with them. In this post, we are going to tell you about the pitfalls of getting a payday loans and explain why it is always better to get a personal loan when in need of quick cash.

So, let’s first understand the elementary things about payday loans and personal loans.

A payday loan is a very short-term — typically a month – and high-cost loan. Basically, the lender is providing you with money till the time your next paycheck arrives. Now these loans are quite lucrative because they are easy to acquire and lenders don’t always check your credit score for giving the loan. The reason being simple, if you provide a proof of income that the lender can verify, the lender will happy to give you a loan as there is only one EMI to be paid. Thus, a payday loan is a way of “pulling forward” your income by a few weeks or days.

On the other hand, a personal loan is an unsecured loan that provides you with cash to use at your own discretion. Since it is an unsecured loan, you don’t have to commit an asset as a collateral to the bank or NBFC. Furthermore, a personal loan offers lower interest rates and flexible EMI options, taking off the pressure from your monthly income.

Reasons to avoid a payday loan:

- Payday loans have a high rate of interest which can be more than double that of a personal loan.

- Payday loans are very short-term — a few weeks or days — so their utility is almost never justified.

- The loan amount is also insignificant as it will be less than your paycheck, so you cannot use a payday loan to manage greater expenditure.

- Failure to repay a payday loan will result in a vicious debt cycle because of the extremely high interest rates.

Reasons to apply for a personal loan instead:

- You can borrow a larger sum to meet your immediate needs and repay it easily in EMIs.

- Although unsecured, personal loans have significantly lower interest rates. In case you apply for a personal loan with Monexo — a peer to peer lending platform — you can even get a personal loan @12.98% per annum.

- Personal loan providers like banks and NBFCs usually charge an upfront processing fee which you can forego when applying for a personal loan from a P2P lender.

- You can also get personal loans with no prepayment charges these days. So, repaying your debt early without having to worry about extra charges is also a plus of getting a personal loan.

Final thoughts

Getting a payday loan can be an extremely egregious financial decision on your part due to the factors mentioned above. We recommend that you consider your financial priorities very carefully and look up good personal loan offers online for immediate capital instead of getting a payday loan. To know more about online personal loans from Monexo-India’s peer to peer lending platform, visit us at www.monexo.co/in