A payday loan
is not necessarily better, but different than a traditional loan. It is one of
a small amount and has short loan terms. It is intended to be used to cover
expenses until a next pay check is received. One similarity is that they both
must be repaid following the loan terms that are originally set; this is where
their likeness ends.
A traditional
loan is often associated with a long and detailed application with a review of
the borrower's credit history and financial status. A lender reviews this
information and decides on the loan's approval. Payday loans provide
applications that usually take less than 5 minutes to complete and give fast
results and fast cash. Most lenders of these fast loans do not review credit
files, which might hinder qualifying for the loan. Once approved, funds are
transferred into a bank account within 24 hours.
The
availability of a traditional loan is different than that of a payday loan. The
traditional loan is available to anyone meeting the minimum income
requirements, credit requirements, etc. The fast loan is available to anyone 18
years old or older, has a steady income and identification. Questions are not
asked to decide if the borrower will be able to repay the loan. Bank lenders
usually look further into a borrower's financial history. Most payday lenders
do not perform credit checks and some do not check employment information.
When comparing
fees, traditional loans are less expensive by not charging fees that are added
on to the actual loan amount. Payday lenders typically charge between $10.00
and $30 for every $100.00 that is loaned. They are usually available in amounts
up to $1,500. The traditional loan is provided with the current interest rate
and no extras fees. With not having a maximum loan amount, traditional loans
are able to offer larger funding.
A short-term
loan is determined by the borrower's personal check that is held for future
deposit. A borrower writes a check for the amount that is borrowed plus finance
charges. Many times, a borrower will give the lender electronic access to his
or her bank to receive as well as repay the loan. The normal loan term is two-weeks
and within this time, the finance charges result in an interest rate between
390 and 780%. Shorter loans have an even higher interest rate but are still
easier and quicker to obtain.
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