Recently, more and more people have taken out payday loans, since they are readily accessible and easy to get approved for. Usually, this form of financing can be obtained from payday lenders. Still, you might wonder what the main distinctions between a payday lender and a bank are. We’ll try to outline the main things you should know so that you can make a fully informed decision.
What You Should Know about Banks
Presumably, the main advantage of dealing with banks is that they usually provide the most convenient loan terms and interest rates on the market. What is more, the loan qualification criteria are quite rigid; which aims at diminishing the likelihood that the borrower might default on the loan. Of course, this could be seen as a disadvantage, as well, especially when you’re in urgent need of money and the lending criteria are so strict.
Another advantage to dealing with banks is that the loan terms are usually longer. That is to say, most loans are long-term, and can be up to 20 years.
Moving on to the primary disadvantages associated with banks, it’s worth noting that the loan requirements are rigorous. In other words, the requirements regarding minimum income, down payment, and credit score might be difficult to meet.
At the same time, banks hesitate to borrow money when it comes to non-conforming motives. The approval process is quite lengthy, as well. And this could be a huge disadvantage when you require financing right away. It may take up to 90 days for the money to be secured. What is more, the pre-payment penalty fees could be rather high.
What You Should Know about Payday Lenders
Moving on to payday lenders, a fundamental advantage could be the fact that the lending requirements aren’t strict. And this could be convenient if you need money right away, but your credit score is not as favorable as it should be.
Securing financing from a licensed money lender can be done fast – which is equally advantageous. That is primarily because the application process is hassle-free, being less complicated and dreary, as opposed to the application process used by banks.
What is more, the fees and closing costs linked to the loan are lower when it comes to a licensed money lender such as those found in
On the other side, the increased convenience comes with a set of disadvantages, as you might expect. That is to say, if you deal with a licensed moneylender, the interest rates will be much higher. Essentially, a high return on the investment is usually implied. Additionally, most of the financing is short-term, which requires the borrower to make repayments in a given time. Concurrently, the payday loan industry is filled with scammers, which could make it difficult for borrowers to find a reputable licensed moneylender.
To conclude, these are some of the main differences between banks and payday lenders. It’s up to you to assess the pros and cons that come with each decision and establish what would work best for your given circumstances.