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Difference Between the Most Sought-After Unsecured Loans – Payday and Personal Loans

Almost every one of us needs financial help at some point of our lives – when purchasing a home or automobile, marriage expenses or medical emergencies. We can wade through these situations using loans. Loans are categorized as secured and unsecured. The interest rate, eligibility requirements and borrowing limits vary depending on the loan type.

In secured loans the borrower pledges the loan with some collateral. It could be any assets of the borrower – an automobile or a house. If the borrower fails to make the repayment on time, the lender would seize the assets. Unsecured loans don’t require the borrower to pledge assets. The risk factor is high for lenders which accounts for the high interest rates.

Unsecured loans:

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When you are a young adult and have little to no experience with credit cards or you possess low credit score, you aren’t eligible for mainstream loans since those loans have stringent credit score requirements. Unsecure loans like payday and personal loans don’t take credit file details into consideration making them an ideal choice for people facing credit score issues.

Payday loan:

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  • Short-term loans that are typically repaid after a couple of weeks or months of borrowing
  • Small loan amount ranging between 100£ and 1500£
  • You either pay the entire amount due on the due date or spilt the amount and pay them in instalments. Repayment details vary between money lenders.
  • Minimal paperwork involved
  • Loan applicant receives the loan the same day or within 24 hours of loan approval which makes this loan helpful in paying off immediate expenses.

These loans are popular among borrowers despite the high interest rate involved. The borrowed amount and loan length are less making it quite easy to make timely repayments if the borrower works out their finances well. If you are in need of instant cash to pay off unexpected expenses and seeking a reliable online money lender for payday loans, visit Loanpig.co.uk.

They are one of the leading direct money lenders in the UK offering flexible short-term borrowing solutions. They are the go-to choose for many who seek short-term goals due to their fair interest rate. They collect details of your loan requirements and connect you with other leading money lenders if they aren’t able to meet the requirements.

Payday loan application process:

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  • Submit your loan application online which records information about source of income and active bank account.
  • The lender team reviews your loan application and approves it meets their criteria.
  • On successful loan approval you receive the money within 24 hours.

Payday loans have a notorious reputation of building up quickly over time and causing the borrower to be stuck in more debt because of the borrower’s inability to make timely payments. Following the controversy that arose regarding payday loans in 2013, the FCA has introduced new rules and started strictly supervising payday loan providers.

Lenders can no more charge ridiculous interest rates. The FCA has set a maximum limit for interest rate percentage. Hence people can borrow payday loans without worries.  If you tread carefully and apply loan after evaluating your finances you can make timely repayments.

Personal loan:

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  • Repayment duration ranging anywhere between 1 and 5 years. Its interest rate varies according to the loan length.
  • Loan amount ranges from 1000£ to 25000£
  • Comparatively lower interest than payday loans but the interest rate is still on a higher scale.
  • Borrower pays a fixed amount every month throughout the loan duration.

The amount borrowed can be used to settle marriage expenses, home renovation, appliance purchase or even a vacation. If your financial situation changes and you want to pay more than the prefixed amount during further instalments, some money lenders may charge penalty which could be interest of 2 months while some don’t charge penalty for early repayment.

Personal loan application process:

  • Input information such as bank details, proof of residence, employment details and other personal details and submit your loan application online
  • The lender checks your credit file to see if you are a reliable borrower and reviews your loan requirements
  • On successful loan approval you will receive the cash in 1 to 3 days.

Since you are expected to make only fixed payments during every instalment, planning your finances is easier with personal loans. The interest rate reduces with increase in loan length. The problem with this is that it could indirectly push you to apply a loan of higher amount than how much you actually need.

These loans are an ideal choice if you need larger amount while payday loans help to sail through your immediate and temporary financial emergencies when your payday is still weeks away. Enquire beforehand about the arrangement fees and variable interest rates as these increases your repayment amount.

Considering applying for any of these loans?

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  • Shortlist few reputable online money lenders and compare their APR and interest rate.
  • Select the loan scheme that works better for your financial situation.
  • Request a soft quote. The advertised APR and interest rate isn’t always promised at the end. Not all lenders follow a 100% transparent and straightforward approach.
  • Submit your online application and wait for approval.

Prior to applying any loans evaluate your income and upcoming expenses to make sure you would be able to repay the loan when the deadline approaches. In terms of risk, the risk factor is higher with payday loans. When you fail make timely payments, it reflects negatively in your credit file.

Your credit scores automatically go down each time you request for loan extensions. This tampers your odds of being granted other loans in future. However, you can avert the risks with shrewd financial planning. Don’t let the interest rates reconsider your decision to seek loans.

There are risks associated when taking any loan and loans are meant to helps us sort out financial crisis. You can reduce the risks by choosing a reliable money lender who keeps your best interests in mind and helps you choose a reasonable loan plan for your needs.


Ricardo is a freelance writer specialized in politics. He is with foreignpolicyi.org from the beginning and helps it grow. Email: richardorland4[at]gmai.com