Payday Loans vs. Traditional Personal Loans
A personal loan, also known as an unsecured loan, is issued by lending institutions to consumers without the requirement of collateral (i.e. home, vehicle). Unlike a secured loan, the sole security pledged by the borrower of a personal loan is his or her personal guarantee. One type of personal loan is the payday loan, intended as a short-term provision of funds that are generally repaid by the borrower's subsequent payday. A cash advance payday loan distinguishes itself from traditional personal loans such as lines of credit, installment loans, and debt consolidation loans in numerous ways:
First, cash advance creditors fill a niche in the marketplace by providing a service not offered by many national banks, namely small, short-term loans. Consumers will find it nearly impossible to borrow money from traditional banks for such a short duration. Check cash advance providers accommodate consumers confronted with a financial emergency, usually minor in nature, and needing a monetary sum in the range of $100-$1000 to stay afloat. A payday loan is ideal for temporary issues such as auto repairs, medical prescriptions, replacement of a home appliance, or a plane ticket to visit an ill relative. By contrast, a conventional personal loan is better suited for consumers seeking to finance large purchases and who, expecting their cash-strapped situation to last for a while, need to pay off regular bills.
Secondly, the check advance process offers consumers the quickest route to loan funds, since approval is generally immediate- within hours of submitting their application. Clients typically obtain the cash overnight or in less than 24 hours, by way of a wire transfer. To apply for a traditional personal loan, consumers need to complete lengthy standard forms and must normally wait 7-10 business days for processing of their application. The payday loan application process, on the other hand, is hassle-free, in that borrowers need only complete minimal paperwork and can benefit from expedited processing. Furthermore, conventional unsecured loan providers, such as banks and credit unions, charge significantly higher processing costs than do payday loan stores.
Thirdly, cash advance companies are usually the only option available to individuals with a poor credit record, no credit at all, or even a bankruptcy. Consumers finding themselves in such a predicament can qualify for a no credit check payday loan, whereby payday loan providers will, at most, request pay-stubs but will not conduct any credit checks. Similarly, no teletrack payday loans waive the credit verification requirement. Conversely, traditional personal loan companies will perform due diligence and a full credit check, as well as request personal references, when assessing a consumer's ability to repay the funds borrowed. They will require customers with bad credit to list a co-signer on the loan. Providers of no credit check payday loans, on the other hand, do not have a co-signer requirement. Rather, they base loan approval on the following criteria:
- Must satisfy the minimum income requirement (i.e. supply bank account information for purposes of employment verification);
- Must show proof of residency;
- Must be at least 18 years of age; and
- Must be able to afford the loan amount requested (i.e. submission of pay stubs).
Depending on the borrower's personal circumstances, he or she may be required to furnish additional information to the payday loan creditor. Hence, it is much easier for a consumer to be approved for a cash advance than for a traditional unsecured loan from a banking institution.
Fourthly, a conventional personal loan usually carries a lower interest rate than a payday loan. The traditional unsecured loan has a fixed or variable rate. Nevertheless, the interest on a check cash advance is less than the cost resulting from a bounced check.
A significant and extremely attractive advantage offered by online cash advance lenders to prospective borrowers is the convenience of applying from the comfort and privacy of their homes. As opposed to traditional personal loan institutions which typically have a long waiting period and require in-person application, online check cash advance creditors provide fast cash to their clients. A simple click of the mouse is all that it takes for a borrower's requested funds to be transferred directly into his or her bank account. It is also an easy and discreet method that guarantees anonymity and privacy since consumers are spared the embarrassment of walking into a loan institution to discuss their financial troubles. By choosing an online payday lender, borrowers will simply have to fill a short online application and are generally not required to fax their bank account data or paycheck stubs. This is in sharp contrast to applying for a traditional personal loan, which requires considerable documentation, by fax or in-person submission of the requisite papers, on the part of the client.
Finally, a check cash advance loan is repaid in 10-14 days, whereas a conventional unsecured loan is repaid in monthly increments.