A loan can prove to be very important to the borrower. It can serve many purposes that can go a long way in as far as taking the borrower’s life to another level is concerned. In particular, a loan can be used to pay for school fees and to finance the studies of a student in a higher learning institution. You can also use a loan to buy a real estate such as a house or a flat. There are different types of loans that exist on the financial market. Two of the most common loans that are available on the financial market are personal loans and payday loans. Both payday and personal loans have got characteristics that are unique to each other as the passage will show.
A personal loan is a loan that is borrowed for purposes of serving the borrower. It is a loan that is borrowed for purposes of sorting out personal matters. A wide range of personal matters exist. However, those needing a huge financial boost may require a personal loan. For example, personal loans can be used for settling long term medical bills and financing long term studies.
Personal loans are secured
All personal loans are secured loans. This means that the security of the funds is always taken into account. In particular, the borrower will be required to sign a collateral agreement where one is expected to declare a certain asset or assets equivalent to the funds borrowed.
Personal loans are associated with low interest rates
All personal loans are associated with interested rates that are generally low. As such, they are much easier to pay back compared to other loans. For example, there are personal loans whose interest rates are as low as 4 %. Such loans are quite easy to pay back.
Unlike personal loans, payday loans are fast cash loans which are borrowed for purposes of sorting out minor financial matters such as bills, repairing a car or buying food at home. Most payday loans cannot serve long term purposes such as long illnesses or financing a long term study program.
Payday loans are associated with very high interest rates
Payday loans are associated with very high interest rates. As such, they are very hard to pay back. The time frame for paying back is also very short.
Payday loans are associated with no security
Unlike personal loans, payday loans are not secured. This means that you do not need collateral to apply for a payday loan. Your lender will only need to know if you have a source of income or not.