Difference between payday loans and short term loans

 

 

Short-term loans

Short-term loans are types of loans that can help you reach short-term goals or if you need extra cash that you’ll pay back in a shorter amount of time. Short term loans are unsecured loans that can be taken out by anyone. The loan term could be between a few months to a  year, meaning that you would need to repay the loan sooner than a normal personal loan. This type of loan is used for unexpected car or home repairs, managing monthly payments if your income is late, emergency medical bills or if you have no emergency fund.

 

Payday Loans

A payday loan is a type of short-term loan that is usually due on your next payday. It is a small loan that is typically less than R5000 and has a high interest rate. Payday loans are often used by people who need money quickly and have no other options. They are easy to get but can be very expensive if you don’t pay them back on time.

 

Short-term loans and payday loans have advantages:

• such as quick money - Get access to cash fast to help you take care of unexpected needs.
• Unsecured - Do not need any collateral to be used as security when you apply.
• Good credit is not always required - Some short term loans can be granted even without a good credit score. Making them easier to acquire.
• Short-term commitment - Because of the short term loan term, you don’t need to worry about paying back over more than a year. This means paying interest over a shorter amount of time.
• Flexible agreements - A few short term loans offer flexible loan agreement terms depending on your specific needs.
• They have lower principal amounts available to borrow and often money is transferred into your account within the hour of your application approval

 

However, there are also disadvantages

• High-interest rates - Short term loans have higher interest rates than traditional personal loans.
• High fees - Short term loans come with high fees which can make them expensive if you don’t pay them back on time. 

 

Conclusion

The main difference between payday loans and short-term loans is the time frame. Payday loans are due on your next payday or within even a few weeks, while short-term loans need to be repaid within a few months to a year, depending on your type of short-term loan. Short-term loans have lower interest rates than payday loans but still have high fees.