What Makes an Unsecured Personal Loan Better Than a Payday Loan?

Personal finance

If you could use some cash to resolve some kind of pressing financial issue, you have plenty of company. Many people face this situation on any given day. That’s fine if you have excellent credit and can obtain a loan with relative ease. What about those who have credit that’s not so great? Do they have not choice but to seek out a payday loan lender? The answer is no. An unsecured personal loan will accomplish the same end and provide some benefits that a payday loan could never provide. Here are some examples.

A Lower Rate of Interest

There’s no doubt that an unsecured personal loan offers better conditions than payday loans. One of the first things you will notice is the difference in the interest rates that come with each financing option. Simply put, a personal loan will have a more competitive rate of interest than any payday loan.

What does that mean? Over the life of the loan, you’re likely to save a tidy sum in terms of interest payments. That’s especially true when you opt for a personal loan with a shorter duration. As a way to get the money you need now without creating a greater financial burden, the unsecured personal loan comes out ahead.

Longer Repayment Period

The nature of a payday loan is to repay the borrowed amount plus interest within a short period of time. Even with the most liberal payday loan terms, borrowers are typically expected to repay the obligation over the next one to two pay periods. The most likely scenario is that the debt becomes due when your next payday rolls around.

By contrast, an unsecured personal loan could allow you anywhere from a couple of months to a year or more. Instead of having to pay everything in such a short time, you can structure the loan so that you have a series of manageable monthly installment payments. Thanks to this approach, it’s easier to repay the debt without putting stress on your household budget.

Fewer Fees and Additional Charges

Payday loans are certainly convenient, but there’s a price to pay for that convenience. Along with higher interest rates, there are likely to be a number of fees and charges bundled into the mix. Some of them may be easy to understand. Others will take some research to figure out.

With personal loans, there are still some fees and charges. The difference is that they are usually fewer add-ons and it’s easier for the average consumer to understand them. If you’re the type of person who values clarity when it comes to entering into binding agreements, the personal loan is easily the better choice.

Your Timely Payments are Often Reported to Credit Bureaus

If there’s any payday loan lender that reports payment histories to the major credit bureaus, rest assured that lender will be difficult to find. The industry standard is to not report activity to any of the credit agencies. That means the money you repay to the lender will do nothing to help you improve your credit score.

With unsecured personal loans, it’s not difficult to find lenders who will report your timely payments to at least one of the major credit agencies. Some lenders will report to both of them. Along with offering you better interest rates, more manageable repayment terms, and loan contracts that are easier to understand, this type of lender will also help you boost your score by a few points.

The bottom line is that there is no real benefit to choosing a payday loan over an unsecured personal loan. If you’re in need of some financing, take a look at what personal loan lenders can offer you. If you compare their terms and conditions with those offered by the typical payday loan lender, it will be easy to see which solution is in your best interests.

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