What is the difference between a short term loan and a payday loan you might be wondering. The main difference are often the terms. Let us explain.
Do you need access to some capital fast? Are you unable to wait until payday rolls around in a couple of weeks?
If so, then we might just have the perfect financial solution to meet your unique situation: either a short-term loan or a payday loan. In this article, we’re going to take a quick look at both of these loan options to help you decide if one or the other is right for you.
What Is a Short-Term Loan?
A short-term loan is exactly what it sounds like. It gives you access to a certain amount of capital, and you pay back that capital in its entirety within a very short period of time.
Think of a short-term loan as exactly the same as a long-term loan, with the only differentiator being the length of the loan’s term. You’ll still pay interest on it. You’ll still make payments on it.
You’ll still need a decent credit score to get one. The only difference is, you’ll finish making payments much quicker than you will with a long-term loan.
Because short-term loans get paid back very quickly, short-term loans are typically for smaller amounts than your standard auto and home loan. Most short-term loans are only for a few hundred or few thousand dollars.
What Is a Payday Loan?
One specific type of loan with a very short-term repayment date is a payday loan.
The payday loan gets its name from the underlying principle of the loan. These loans save the day when your next paycheck would cover the capital you require. Thus, most payday loan lenders will use your past pay stubs as evidence of your ability to pay back the loan.
This means that the loan lender may not even run your credit. If you’re the victim of a bad credit score, then you know just how hard it can be to get approved for any type of credit, whether it’s a loan or a credit card. Because not all payday loans look at your credit report, you may well be able to find a loan option that you will be approved for based solely on your income history.
Payday Loans vs Short-Term Loans
Another major differentiator between payday loans online and a short-term loan is that payday loans are meant to be paid back in one fell swoop. A short-term loan, on the other hand, typically involves repayment across multiple payments.
With a payday loan, you can also get access to capital very fast. Many a payday loan lender out there will actually deposit the entire sum of the money you borrow into your bank account the very same day that you apply for it.
Which One Is Right for You?
There you have it. Now that you know that a payday loan is paid all at once and short-term loans are spread across a couple of repayments, you should have a better idea of which loan option is right for you.
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