03 Mar Personal Loans Vs. Payday Loans: What You Need To Know
Payday loans can be a tempting option when you’re struggling financially or you have bad credit. They’re easy to apply for and generally easy to get. But this type of loan is risky and usually comes with very high interest rates and strict, inflexible terms. Using a payday loan could land you in a worse-off position financially.
If you’re after funds to tide you over until you get back on your feet again – even if you have bad credit – choose a personal loan instead, that offers fair interest rates and competitive terms. Read on to find out more about the differences between payday loans and personal loans, and find out why personal loans are always a better choice.
Unlike payday loans, which are typically small cash amounts up to $1000, the borrowing limit on a personal loan is far higher. Payday loans are generally used to pay for small, unexpected expenses – things that you didn’t budget for but that you need to get done before your next payday. Personal loans, on the other hand, cover so much more. So, whether you want to buy a new car, consolidate your debt into one manageable repayment, pay for an emergency medical procedure, take the kids away on a family holiday, or renovate your home to improve its value, personal loans are your go-to finance option if you need cash in a hurry.
While a payday loan may be one solution in a situation where you need cash to tide you over until your next payday, it certainly isn’t the only option. And really, it should only be considered as a last resort. With interest rate charges starting at around 0.25 per cent per day, additional fees and charges as well as late payment penalties, a payday loan has the potential to leave you in a worse-off position financially. And no one wants to end up in that situation!
By comparison, personal loans offer far more competitive interest rates, less fees, and more flexibility around terms. At Max Loans, we work hard to get the most competitive interest rates available to you, with a set repayment plan that fits your budget and lifestyle. Which means you go into the credit agreement with clear expectations of how much you have to repay, what the charges are, and how long the term is.
When it comes to repaying a payday loan, borrowers are required to make repayments based on how they are paid a salary or wage. For example, someone who is paid weekly, will repay a payday loan each week, while a borrower on a monthly salary will repay a payday loan at their next monthly payday. Managing repayments on payday loans can add immense pressure to already struggling borrowers. And having to repay a lump sum in full only makes things worse.
The key to managing finance is finding the right balance between repaying a loan and having enough income leftover to live on. With a personal loan, borrowers can choose a more affordable, and longer, repayment plan based on their own unique financial situation. That can help alleviate financial stress and even help borrowers get to a more stable financial position.
Impact on credit score
It can’t be stressed enough just how important it is to take care of your credit score. A bad credit score can impact a borrower’s ability to access affordable credit, and that can have long-term negative financial consequences. Payday loan applications show up on a credit report – something that other lenders may view negatively. What’s more, applying for payday loans often leads borrowers into a damaging cycle of further borrowing to counter the high interest rates and short loan terms of this type of lending.
With personal loans, however, borrowers are assured that the repayments are affordable and manageable. Furthermore, as personal loans are designed to be a responsible financial solution, paying back personal loans on time and in full can positively impact a credit score. And that helps boost your credit report and ensures lenders view any future applications in a more positive light. For more information on credit scores, and how to improve your credit score, take a look at these 9 tips for building credit in NZ.
The right finance option for you
Many New Zealanders are faced with financial uncertainty. And that can lead to making poor choices around lending. But the good news is, there are alternatives to payday loans that actually have a positive impact on your finances.
With access to a wide variety of personal loan providers, Max Loans’ Personal Lending Advisers can source some of the most competitive personal loans NZ wide. To find out more about personal loans, simply get in touch.Apply Now
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