A personal loan is an unsecured loan given by any traditional bank. One can take the personal loan for any purpose such as buying a new house, new car, to finance higher studies, or to meet any necessary requirement.
A payday loan is a short-term unsecured loan given by payday lenders. Usually, people take a payday loan during an emergency such as to pay a medical bill, for house renovation, during festive seasons, or during any unexpected situation.
Both the personal loan and the payday loan are the unsecured loan which is given without any security. But there are many differences between the two lending systems with respect to the terms and conditions.
Payday lenders are very lenient while giving a loan. They are ready to give you the loan with very little paper works, official verification, and within a short time-frame of around 24 hours. In contrast, the traditional lenders go through lengthy paper works, verification process, and usually take several months to approve the loan.
People usually take a payday loan when they confront a financial crisis all of a sudden or if they have a poor credit record. The main advantage of payday loan is that people with bad credit record can also avail this facility, whereas the personal loan is given only to the people with good credit history.
Though a payday loan has many advantages over a personal loan, for two things people generally avoid to take a payday loan. First, high interest rate. Second, the loan is given for the small amount of only $500 or even less. The payday lenders charge $10 to $30 for every $100 borrowed, while the average lending period is normally 14 days.
The traditional lenders can provide you a personal loan of the high amount, charge less interest rate and for an extended period.
Payday loan has several drawbacks because of which I feel it should be abolished by the federal government. Payday loans are extremely expensive. Many payday loan companies require access to your bank account which sometimes leads to fraud.