HomeGetting a Loan

Knowing Your Options: Which Personal Finance Loan Best Suits Your Needs?

Knowing Your Options: Which Personal Finance Loan Best Suits Your Needs?
Like Tweet Pin it Share Share Email

Life is going to throw curveballs at you. That’s just the way that it is. A lot of times, these curveballs involve not having enough money to pay for whatever expense has been thrown at you. It could be a refrigerator going out or a problem with your car breaking down. It’s something that you absolutely have to have no matter what, but you probably don’t have the extra money lying around all the time to fund big purchases like these. In those instances, it’s important to remember that you have a couple of different options regarding personal finance loans. What you have to decide, is which one is going to be the best for your specific situation.

Personal Loans vs. Payday Loans

To fully understand what your options are when it comes to personal finance, you should first get a precise definition of what personal loans are and what all payday loans entail.

A payday loan is one that you can walk into a business in your downtown shopping plaza and show your proof of employment to get a small, short-term loan. The amount generally varies that the lenders are willing to give you from $100 to $500. They will take a look at your employment history and how many hours you work and verify that you will be able to pay them back with your next paycheck. Basically, you answer a few questions and show them a paycheck stub. When that is cleared up, you will walk out the door with money in your hand. The process takes just a few minutes.

There are no credit checks done with payday loans, and that’s why many people who are hard up for cash that have bad or no credit will utilize them. While it’s a valid solution in some cases, it’s not always going to be the best choice for your financial future.

Personal loans are loans that you get from a bank. You can usually get a lot more money, but you have to prove that you are a dependable borrower. They will give a much more extended period to pay back the money as well; usually at least a few months, depending on how much money you took out to start with.

There are two different kinds of personal loans that your financial institution is going to offer you:

  • Secured personal loans are personal loans that you give a collateral deposit for such as the title to your house or car. You can get more money most of the time with secured loans because the bank has more confidence that you will pay them back.
  • Unsecured loans are taken out without any sort of collateral. The interest rates tend to be higher for these.

The payment for a personal loan is often a lot less than that of a payday loan because you have more time to pay the full amount back. It keeps you in a more comfortable place financially because depending on how much you took out for your payday loan, you could be forking over your whole paycheck at once. Then, the vicious cycle continues.

Why Payday Loans Are Risky

Payday loans are helpful because they’re relatively easy to get and the money is in your hand quickly. However, they come with risk. The risks of payday loans include a high-interest rate along with an additional flat fee based on how much money you are taking out. You might get the cash you need right away, but you’re going to be paying out a whole lot more when it comes time to return the money.

One thing that you should be watching out for is what happens if you aren’t able to pay the money back on time. While in most cases you can, there may be another emergency that comes up that keeps you from being able to. When that takes place, your loan is rolled over, and everything is doubled.

These are ideal for emergencies and people with zero or no credit, however, a personal loan is most often going to be a much better choice.

Personal Loans As The Better Choice

There are a plethora of reasons why personal loans are going to be the better option for most borrowers. First of all,  you don’t have to worry about your payment changing or your interest jumping up. Whatever your payment and interest are at the start, that’s how they are going to end.

If you are someone without a lot of credit, taking out a personal loan is a great way to build that up. It’s a much better idea than doing it with credit cards, because those can get you into trouble as well with high interest rates. You are going to want to do that if you plan on buying a home or making a big purchase anytime soon that lenders are going to want to see your credit score for.

Finally, you can get more money for things like vacation, surgeries, or even making home improvements. Whatever the reason you are taking the personal loan out for, be sure that you are doing so responsibly and you can afford the payment that’s going to come along with it. If not, you might find yourself in the same position as you would with a payday loan.

Making A Choice

Now it’s up to you to make the best choice for your personal financial situation. Your friends might be telling you just to stop in and grab the quick cash because it’s so easy. This is great if you’re going to have the money to pay back within the timeframe allotted and you aren’t burying yourself in the process. It’s also necessary sometimes in an emergency. When you have a little bit of time to plan for your loan, you are going to want to get with your bank and set up a personal loan. You can get more money, have more time to pay it back, and you’ll be working on building that credit score!