What is a payday loan?
There may be times in your life when you just need a little extra money, for example for the purchase of a new car or to finance other unexpectedly high costs. You can then consider borrowing money from a bank. Different forms of borrowing are possible and there are always advantages and disadvantages to borrowing money from a lender. It is therefore important to thoroughly delve into the possibilities and conditions of a loan, so that you know what you are starting.
What is credit
If you are going to take out a loan, you will have to deal with the term credit. But what exactly does that mean? Credit is actually just another word for loan and is a common term in the financial world. It is a capital, in the case of a loan it is money that is provided to someone by a lender, usually a bank. For this credit a repayment is expected within a certain period, and usually an interest rate comes on top. The interest is, as it were, a consideration for providing the amount of money. You will have to deal with credit if you take out a payday loan, a revolving credit, a mortgage or a small loan.
Different forms of credit
A loan, or loan, is offered by lenders in various forms. It is important to properly compare the various forms with their different conditions and rates, to find out which loan type best suits your own situation. The payday loan is one of those forms of credit. Another well-known form of borrowing is the revolving credit. But what exactly do those two forms entail and what are the differences?
The payday loan versus the revolving credit
With a revolving credit you can withdraw money from the lender up to a predetermined limit. You immediately pay interest on the money you withdraw. You usually have to repay an amount on that loan on a regular basis, but you can also continue to repay without penalty. In addition, it is possible to borrow an amount again after repayment, as long as you do not go beyond the agreed limit. A revolving credit therefore offers a lot of flexibility. After all, you do not need to know exactly how much money you need in advance.
The disadvantage of a revolving credit
The flexibility of a revolving credit therefore offers advantages, but of course there are also disadvantages to this form of borrowing. The biggest disadvantage is that the interest on a revolving credit is variable. This means that you do not know in advance how much interest you will have to pay when you withdraw money from the credit. In short, you do not know in advance how much the loan will cost you. In addition, it is difficult to get rid of a revolving credit because you have the option of always withdrawing money from the credit again. Because of the flexibility, it requires a lot of discipline to get rid of the loan.
What is the difference with a payday loan
With a payday loan, this flexibility is not there. You determine in advance what amount you are going to borrow and when you take out the loan, this amount will be paid to you in full in one go. Clear agreements have also been made in advance about the reimbursement. During a fixed term you pay back a fixed amount in fixed installments, usually every month. Money that has been paid back cannot be borrowed again. So you cannot borrow from it.
The benefits of a payday loan
With a payday loan everything is fixed. So you know in advance exactly what amount you will be paid, and you also know exactly what you need to pay back and when. The interest is also fixed and is agreed in advance. So you can calculate exactly what the loan will cost you. If the term of the loan has expired, you have also repaid the entire loan. It is therefore easier to get rid of this loan than with a revolving credit.
Therefore, a payday loan has disadvantages
A payday loan therefore gives you a lot of clarity. After all, you know in advance exactly what it will cost you and what is expected of you. But of course this form of borrowing also has disadvantages. Firstly, the interest for a payday loan is often higher than with a revolving credit. You also usually are not allowed to pay extra. After all, the lender would then miss interest because you would shorten the term of the loan through additional repayment. Early or extra repayment is therefore usually fined.
How high is a payday loan
Once you have chosen to take out a payday loan, the question is probably how much can I borrow? There is no simple answer to this. The amount that you can borrow depends on various factors. Your age, for example, plays a role. In addition, you must have sufficient income to be able to pay the monthly costs of repayment and interest. Your living situation can also influence the amount.
Difference between lenders
In addition to factors such as income, age and living situation, the amount that you can borrow can also depend on the lender you choose. There are many different lenders that can offer a payday loan. Every provider of course has its own conditions and rates. It is therefore certainly worthwhile to compare a number of different providers with each other, so that you can take out the payday loan with the lender that best suits your situation.