When you consider taking out a loan, it is very important to consider what type of loan is best suited for you? The lending market is a big one and you can find all sorts of loans with different packages catering for you and your financial needs. This is the time when you might want to consider researching a bit before you go out searching for one.
There are factors such as your income and your credit score which play an important role in the lenders decision of how much they can lend you and at what interest rate. For people taking out a loan, it is recommended to get their credit score up before going to apply for one. All lenders do a credit check to determine the authenticity and the capacity of repayment of the borrower.
There are different types of loan that a person can take out to get their credit scores up but most of them are expensive in interest rates and sometimes you might have to involve a co-signer to cover for your defaulting.
The world of loans is a complicated one, but with the right information and the right lender, you can benefit a lot from it.
Here are some of the main differences between Payday Loans and Long Term Loans
Lets’ get straight down to business. The most important thing for a borrower is to know how much interest they need to pay on the borrowed amount. Most lenders do a credit check on the borrowers to be able to give them the interest package that they can afford and will be able to pay back.
People who have a good credit score can expect larger amounts to be lent with a lower interest rate while people with a low credit scores can expect a lesser amount with higher interest rates. Yes it does sound a bit unfair that a person who can’t already afford a loan gets a higher interest rate, but loans are the lenders’ game. They want good returns on their investment and for that they have to charge higher interest rates on small loans.
In Payday Loans, the interest rates are very high as the loan you take out is a small amount in a very short time. A Payday lender takes a huge risk when they give out a loan without the consideration of a credit check. And for a Payday loan to benefit the lender, high interest rates are required.
Normally a long term loan would have 16% interest associated with a larger amount for a longer period of time and divided equally in monthly and annual payments.
A 16% interest on a payday loan means that you have to pay the loan on the amount all together when you get your next payday. It may be expensive but it is an easily acquired and immediately transferred loan and can be gotten rid of as quickly as possible. Long term loans may charge a fee for early payment if you want to get rid of the loan amount altogether.
Credit score is the only background check that lenders really care about. A lender will always check the credit score of a borrower when giving out a long term loan, to assure themselves that the person is good with loans and will pay back the borrowed amount with interest in time.
A person with a bad credit score tends to not get good interest rates and in some cases, has the loan application rejected. People seeking out loans are constantly reminded to get their credit score up, which is also done by getting loans and paying them back.
If a person is looking for a loan on bad credit, they have a few options that they can go for, but they do turn out to be a bit more expensive than normal loans. In some cases people who want to take out a loan on bad credit can also have co-signers who would take care of any defaults by the borrower.
Payday lenders do not check credit scores when they give out a loan, but what they do check is your income to determine how much can be lent to you. Payday loans are great for people with bad credit, as they are given the money without the hassle of credit checking and are given a chance to improve their credit score.
People with a bad credit report should seek out Payday loans to get out of their financial cringe and improve their credit score at the same time.
Ease of acquiring and payment
Long term loans usually require a lot of verification and background checks before you can be approved for them. Long term loan lenders have a higher risk of losing their profits on defaulting than payday lenders, which is why they take specific measures to approve loans for borrowers. The payment time is fixed and in case of late or early repayment on long term loans, you can be penalised as this also causes the lender to lose money.
I Payday loans; you borrow a fixed amount with a fixed interest rate that you pay with your next monthly income. There is no requirement for a credit check, however your employer may be contacted to confirm your income and confirmation of current employment. If you provide enough paperwork, this can be avoided and you can request the lender to keep it private. There is no penalty of early repayment on Payday loans, but there is a penalty on defaulting and it is a heavy penalty as with the already high interest rate, you might have to pay a lot more than you thought, so it’s better to take out a Payday loan when you will be able to pay it back on time with full interest.
If you want to compare different Payday loans and find out what sort of interest rates would be best for you with your current monthly income, go to paydayloans.quiddicompare.co.uk and get the best Payday loan rates for yourself.