Bank Loans vs. Payday Loans

Bank Loans vs. Payday LoansIf you’re looking at the bank loans vs. payday loans debate and wondering which is better to go with, there are some important things to consider. Most people don’t get a payday loan because they think that it’s a better choice than their other options, they get it because it’s pretty much their only option.

It seems silly that those who probably don’t really need the money get the best rates and the best conditions for the loan, while those that are struggling to make ends meet and are living paycheck to paycheck only have loan options that exploit them when they’re down. It only creates a greater separation between the rich and the poor, because someone with credit that is good enough to get a bank loan could also be approved for credit and financing and has a lot more financial options available to them.

For example, if their car breaks down and they need to get it fixed they wouldn’t have any trouble renting a car to get to work while the repairs are being made. A person with bad credit and no money in savings will need their car to get to work, and either won’t be able to afford a rental car, or won’t be able to rent it because of their bad credit. It’s the classic Catch-22 of being stuck between a rock and a hard place, and often the payday loan represents the rock, and the financial crisis represents the hard place.

Bank Loans vs. Payday Loans

If you’re able to get a bank loan, then of course this is the one to get, as it will have the lowest rates and the longest time to pay it back, typically in monthly installments. The only problem is that many if not most people won’t qualify for a bank loan and still need to get their hands on some cash. There’s really no comparison between the two, and the type of person that would qualify for a bank loan won’t be found in a payday lender’s office, or vice versa. It’s almost akin to class warfare, and definitely is a sign of the difference between the haves and the have nots, or the rich getting richer, or at least the rich not getting poorer.

Loan Amounts
Banks can loan as much as you need as long as you can show a stellar repayment history, excellent credit, and have a form of collateral that you’re putting up, like a house or a car. Payday loans on the other hand are usually $1000 or less, and don’t require a credit check or involve you putting up anything as collateral, other than your next paycheck.

Interest and Fees
Payday loans are notorious for the fees and the relative interest rates these represent. Banks will give you loans with an APR in the teens, whereas payday loans have no trouble giving you loans with APRs that translate into 300% and sometimes over 1000%. Pretty much everyone knows that you’re being taken advantage of when you get a payday loan, but for many people it’s the last resort and they can either suffer through the high fees, or they can be broke for weeks on end, or not be able to make car repairs.

Repayment Dates
A bank will typically spread your payback over a year or more, and collect monthly payments that total up to your original loan amount plus interest. A payday lender will want to either see you on your next payday with cash in hand for the full amount including the fee, or they will require you to authorize charging your bank account when your next paycheck is directly deposited into it. Either way you’re only getting about two weeks to use the money, and this is why the fees are so high, because you don’t have much time to use it.

There’s not much debate going on here, if you can get a bank loan you’ll know it, and if you can’t you’ll know that too. Either you’ve been good with your credit and have some collateral or you’ve gotten into trouble with your credit and don’t have anything you can put up against a loan.

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