How is payday loan different from loans?

In general, a personal loan will be cheaper than a payday loan.

Lower-cost personal loans give the borrower more time to pay off a loan than a payday loan, and most credit unions offer personal loans with annual interest rates comparable to credit cards, which still charge lower rates than payday loans.

Payday loans are almost always more expensive than personal loans when it comes to borrowing money, and they're also riskier. Personal loans allow you to access larger amounts of money and lower interest rates compared to quick loans. That is, unless you don't repay the loan on time and are referred to a debt collection agency, which would hurt your credit rating.

While fast lenders don't usually declare quick loan accounts to credit bureaus, unpaid balances sent to collection agencies may appear on your credit history. For example, in the state of Washington, you're limited to taking out up to eight quick loans every 12 months. Each state establishes usury laws that govern the conditions and interest rates that financial institutions can set for loans. Payday loans are generally not reported to the three major national credit reporting companies, so they are unlikely to affect your credit rating.

Payday loans usually aren't reported to the three major credit reporting agencies, but if you can't repay the loan and it's sent for collection, this can affect your credit score. Check with your lender or state to see what rules apply to you, but also keep in mind that taking out several quick loans can lead to a vicious cycle of debt. These services are also known as wage advances, advance pay, or payroll, and are often provided by financial technology startups, not by traditional lenders. Personal loans offer longer loan terms and higher loan amounts, while quick loans offer smaller loan amounts and usually require repayment in 2 weeks or before the next repayment period.

Lenders may have different requirements regarding acceptable credit rating, income, and debt-to-income ratio (DTI) for approval of a personal loan. One option to get rid of fast loans is to consolidate them with another low-interest debt instrument. The personal loan process is also quite fast, with some online lenders distributing their funds within 24 hours. In some cases, that may be true, but 48% of quick loans are renewed multiple times, according to the Consumer Financial Protection Bureau (CFPB), indicating that most of these loans are not repaid on time.

Using a simple online personal loan calculator can help you determine what type of payment amount and interest rate best fit your budget.