The Main Differences between Personal Loans and Payday Loans

Finding out what loan you need is much like shopping for a specific product. You start by identifying your need and then go on to weight the pros and cons of each product. But before you know how to weigh the pros and cons, you first have to do some research about whatever you’re going to get.

Today, we’ll be looking at the main differences between personal loans and payday loans in Singapore, so when you find yourself in need of some fast cash, you’ll be prepared to make a quick loan decision!

Payday loans

Payday loans are a form of short term loans that can be approved instantly, and come with a short repayment period. It is best when you need urgent cash before your next paycheck. Payday loans get approved with little to no credit check and licensed money lenders usually charge higher interest rates than the personal loans because of the short repayment tenure.

One of the biggest pros of payday loans is that money lenders, don’t usually check the credit history of the borrower. So if your credit score is an area of concern for you, it would be significantly easier to secure a payday loan when you’re in need of some fast cash. One thing to note, however, is that payday loan sums are never very large.

Personal loans

Personal loans can be short term or long term, depending on the repayment terms you opt for. Like the name suggest personal loans are usually taken out for personal needs of an individual such as home improvements or family needs.

With that said, personal loan amounts can actually be used for any purpose and this loan is sanctioned on the basis of borrower’s credit history and the ability to make repayments on time. The repayment of personal loans in Singapore is done with monthly instalments for a period of time that is agreed upon by both the borrower and lender.

The Key Differences of Personal Loan and Payday Loan

Both loans are useful for borrowers when they’re in need of a little financial boost, but both have their own terms. We’ve given you a brief introduction to each, but now let’s look at the main differences you should take note of.

Loan amount

The final loan amount of a payday or personal loan will vary between licensed money lenders. But with personal loans, you’ll be able to get a larger loan amount as compared to a payday loan, which only grants you a small loan sum.

Cost of the loan

Some licensed money lenders may advise you to only take on a payday loan if you absolutely cannot wait for the extra cash. This is because payday loans generally impose the highest interest rates amongst loans in Singapore.

Repayment Duration

When taking out a personal loan with a licensed money lender, the repayment period is longer as compared to a payday loan, though the final duration is subject to the assessment and approval that takes place when you consult with a licensed money lender.

Eligibility

Personal loans come with stricter eligibility criteria and borrowers typically need to have a good credit score. Payday loans, on the other hand, are more lenient in this regard and lenders mainly look at how regular the income of the borrower is.

Lenders

The lenders for both types of loans are different. Personal loans are offered by the banks, online lenders and licensed money lenders but payday loans are offered by licensed money lenders and can also be taken out against your credit card.

Guide to Loans Singapore

We hope this simple guide will help you in making the best loan decision you possibly can. But if you have more doubts to clear or questions to answer, just leave us a comment below or contact us at our hotlines: : (+65) 62244746 (Yishun) and (+65) 62244749 (Tampines).