There are numerous options available to borrow in the existing advanced world. For example, you can consider a payday loan for your immediate requirements if you can pay the dues with your next paycheck. Alternatively, you may prefer a more flexible and easy budget approach to dealing with requirements.
The mode you choose to finance your needs depends on affordability, purpose, and comfort. For some individuals, paying the loan in instalments is feasible to lump-sum payments and vice-versa. It is the reason they take up payday loans for their needs.
However, still, around 65% of individuals still take the wrong loan that does not meet their needs. Despite too many products for every financial requirement and budget, individuals get confused about choosing the right one. This is because both short-term loans and payday loans share some similarities. Individuals struggle to distinguish the prime aspects of each and borrow the wrong one.
If these terms- short-term and payday loans confuse you often, then the blog is for you only. It lists the similarities and differences between payday loans and short-term loans.
Similarities between Payday loans and short-term loans
Payday loans and short-term loans are both popular for ease of availability. As both loans are exclusively for small and emergency requirements, these loans share high-interest rates. It implies, you eventually pay more in comparison to other loans. Let’s discuss other aspects where these loans are almost similar:
1) Same day approval and finance
One of the commonalities between payday and short-term loans is the same-day finance possibility. As these loans do not require detailed credit checks, documentation, and collateral, they have quick turnarounds. Lenders provide the loan by analysing the recent financial management.
If you can afford to repay the loan, he approves. Thus, if your monthly expenses are lower than your income or cover just 30%, you can qualify for payday and short-term loans from direct lenders respectively. Analyse and compare the terms to match your needs and financial situation before applying. It would help you avoid unnecessary debt/interest costs.
2) Any purpose loan
You can use both loans for any small and urgent purpose. For example, if you must clear the credit card dues, you can use either of them. Apart from that, you can use the loans for:
- Counter a medical requirement
- Finance the part rental payment
- Repair car or re-fuel it urgently
- Admission form fee
- Examination form fee
- Short-circuit repair
3) Flexibility to refinance the loan
With both payday and short-term loans, you can refinance for better interest rates and terms. It helps you reduce outstanding liabilities and repayment amounts. However, analyse the situation and economic status before refinancing the loan. It may not be ideal if you are about to complete the loan term or agreement.
These are some similarities between payday and short-term loans. Now, let’s analyse the differences that would help you choose the right one.
Difference between Payday loan and short-term loans
Though payday and short-term loans are to an extent, they are not the same. The terms, interest rates and the loan payment nature differ. Let’s analyse the difference between payday and short-term loans in detail:
1. Repayment tenure
Payday and short-term loans differ from the repayment perspective. In payday loans, you must pay the loan within 30 days of the loan approval. However, in some cases, lenders provide the flexibility to pay the amount until 3-6 months to pay comfortably. In this, the borrower pays the complete amount.
Alternatively, in short-term loans, the borrower shares the flexibility to pay the amount in fixed monthly instalments. Under this, you can repay the loan for 12 months from the date of approval. Moreover, you share the freedom to choose the repayment tenure. You can choose 3,6,9, and 12 months of repayments according to your financial liabilities or income.
So, if you want to split the loan costs or pay in instalments, choose a short-term loan.
2. Interest rates
Though both loans are nearly the same, payday loans are competitively priced in comparison to short-term loans. It is because these loans are salary-based loans that require a lump-sum payment instead of instalments. Thus, as a matter of security, lenders impose high-interest rates. If you have a low income, you may expect higher interest rates with payday loans than on short-term loans.
Short-term loans would be an ideal choice for individuals with stable incomes. It grants you the security of fixed payments that go missing in payday loans. It is ideal for self-employed, freelancers, students, unemployed or tenants figuring out the best job possibilities. You can easily budget according to your income, liabilities, and disposable income possibilities.
3. Loan Amount
It is also one of the important factors that help you decide right for your requirements. If your needs amount to anywhere between £1000-£1500, a payday loan would be ideal. You can get that much by presenting proof of income – salary slip, part-time income payments, self-employed payments, pension support or any form of legal income. It is because these loans are income-exclusive loans.
Alternatively, short-term loans come with better flexibility over borrowing amounts as well. You can get up to £10000 for your needs. Yes, you can even apply for £7000 if not £10000 according to your purpose and cash requirements.
The application approval depends on the authenticity of the credentials you provide and the form filing. It must not have any discrepancies. Otherwise, it may lead to a straightforward rejection.
How to increase chances of instant acceptance on payday loans?
In comparison to short-term loans, payday loans are challenging to get accepted for. The reason is the terms and the criteria that an individual must match.
It is distinct from short-term loans and generally inflexible. It is the reason individuals seek the best ways to get instant approval. This is even though payday loans are one of the easiest ways to get quick approval.
To get high-acceptance payday loans instantly, you must update a few credit aspects. High acceptance implies you share a high chance of getting the loan if you have a favourable financial situation. Here is what you can do to improve the score:
- Ensure authentic income proof.
- Keeps your debts minimal.
- Pay any outstanding small debts like- credit card before applying.
- Borrow a lower amount than what you need.
Bottom line
So, these are some similarities and differences between payday and short-term loans. Precisely, get a payday loan if you have a fixed income and can clear the loan in a single lump sum. Alternatively, a short-term loan could be a better option. It grants the opportunity to pay the loan in instalments for 6-12 months. Choose the best one according to your finances, purpose, and comfort.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
