Secured loans are not available for applicants that don’t meet the credit criterion. Most secured loans are stringent about their entire criteria and credit score is only a part of it. The quantum of salary, nature of employment and various other personal details will be factored in at the time of processing the loan application. Unsecured loans are the only resort for anyone looking for some financial assistance regardless of the purpose.
Unsecured loans can be long term or short term. It is rare for unsecured loans to have repayment terms in excess of eighteen months or twenty four months. The most common unsecured loans are short term, usually with a repayment term of less than a year. While there is a gamut of unsecured loans for applicants with bad credit, they can be classified as short term loans and payday loans. Payday loans are deemed as the easiest to get loans for bad credit. However, short term loans can be just as easy to get and they can have much better terms. One needs to deal with the right facilitator and find the suitable lender for such short term loans. This is where Flex Repay UK comes in.
To put the differences in perspective, here is a comprehensive assessment of short term loans vs. payday loans.
- Payday loans are so called because the borrower needs to pay back the loan with interest on the next payday or the date when one would get paid again. This could be in a fortnight, three weeks or a month. In some cases, the repayment date could be a payday seven days from borrowing the money. However, it is quite rare for payday loans to have such a short repayment period. Most payday loans have a term of one month. The entire loan with the interest is to be paid back from the paycheck a month from the date of approval or disbursal of the loan amount. It could be a few days short of thirty days or a few days later. Short term loans usually have a repayment term of anywhere from three months to twelve months. This is only pertaining to unsecured short term loans, since payday loans are also unsecured. Secured short term loans can have repayment terms of up to five years, in rare cases longer. Payday loans are rarely secured.
- Payday loans are to be paid back in entirety or partially in a month. If only a part of the loan amount and interest are paid in the first month, then the rest should be paid in another month or perhaps three months. Payday loans usually don’t have repayment terms ranging up to twelve months. Some rare lenders allow three months but that is about it. Short term loans have a minimum repayment period of three months. They do not require you to pay either the entire amount in one month or partially in two months. This lenient repayment term is a huge advantage for those who go for short term loans instead of payday loans.
- The other significant difference between payday loans and short term loans is the rate of interest. Payday loans are a kind of short term loans but they are inherently focused on the payday. The rate of interest is usually much higher than other types of short term loans. It is quite possible that short term loans with a three month or six month repayment term will have the same rate of interest as payday loans with a month to repay in full. However, the interest and the principal amount lent to the borrower will get split into several months in case of short term loans, something that is not possible with payday loans to be repaid in a month. Hence, there is a far greater likelihood of defaulting while repaying a payday loan compared to a short term loan.
Both payday loans and short term loans are loans for bad credit and they have higher rates of interest than a mortgage or a car loan. Borrowers must assess the differences as laid out above to decide which form will be more suited to their needs given their income and existing financial liabilities.