When it comes to short term finance that you can get quickly, you have two main options. Either payday loans or an unauthorised overdraft. But which one is the better option? That's what this article is going to be exploring.
Payday Loans: How They Work
As long as you are able to pay for a pay day loan out of your following month's salary then you should be approved for the loan. The application can all be made online and there is no need to even speak to anyone. There are no credit checks, or questions about what you intend to do with the money. The money usually comes through on the same day as well.
When you get paid from your job next month, that's when you have to pay the money back. That is why these loans have got the name "pay day" of course. Crucially, you have to repay all of the interest as well as the principal amount at the same time.
How Unauthorised Overdrafts Work
It's not entirely accurate to say that "unauthorised" overdrafts are actually unauthorised. After all, the bank could simply refuse to pay anything out once you go past what you have available. Really then the difference is whether it is something that has been arranged beforehand or not.
As you have not arranged an unauthorised overdraft though, the bank can pretty much charge whatever they like and they take advantage of that. So there are usually daily charges as well as monthly charges so the longer you are in overdraft the more you are going to be charged.
Speed
One of the most important parts of short term loans is how fast you can get them, as in an emergency speed is often very fast. As mentioned, with a pay day loan you are certainly going to be getting the money fast, usually on the same day.
In terms of speed though, nothing will be able to defeat the overdraft. All you have to do is continue using your bank account in the normal way so there is nothing that you have to wait for. Still, there aren't going to be many situations when you can't wait a few hours, or sometimes just minutes, before getting a pay day loan.
Interest Rates and Charges
As there isn't much difference in terms of speed between payday loans and overdrafts then, the biggest concern is going to be the expense that is associated with each sort of loan. Here you will find big differences.
When it comes to costs, that is where many people think that pay day loans become a bad deal. They take one look at the APR and think they must be extremely expensive. And of course the APR is high, but that's only because it should only take you a month to pay the loan back, not 12 months which is what the APR measures.
While the APR is not a fair way to judge a short term loan on its own, it can be used as a useful comparison between two loans of the same type. So that's what we're going to do now with overdrafts and payday finance.
In this case it is the payday loan which is the clear winner. They may have an APR in the thousands of percent, but unauthorised overdrafts have been known to be in the ten of millions of percent! So you should never have either out for a year, but clearly pay day loans are cheaper.
There is a proviso to that though. Payday finance has to be taken out for a fixed amount of time, whereas that is not the case with an overdraft. So if you pay back the overdraft within a day or two then it might be cheaper than a pay day loan. Much beyond that though and the loan is going to be cheaper.
Payday Loans: How They Work
As long as you are able to pay for a pay day loan out of your following month's salary then you should be approved for the loan. The application can all be made online and there is no need to even speak to anyone. There are no credit checks, or questions about what you intend to do with the money. The money usually comes through on the same day as well.
When you get paid from your job next month, that's when you have to pay the money back. That is why these loans have got the name "pay day" of course. Crucially, you have to repay all of the interest as well as the principal amount at the same time.
How Unauthorised Overdrafts Work
It's not entirely accurate to say that "unauthorised" overdrafts are actually unauthorised. After all, the bank could simply refuse to pay anything out once you go past what you have available. Really then the difference is whether it is something that has been arranged beforehand or not.
As you have not arranged an unauthorised overdraft though, the bank can pretty much charge whatever they like and they take advantage of that. So there are usually daily charges as well as monthly charges so the longer you are in overdraft the more you are going to be charged.
Speed
One of the most important parts of short term loans is how fast you can get them, as in an emergency speed is often very fast. As mentioned, with a pay day loan you are certainly going to be getting the money fast, usually on the same day.
In terms of speed though, nothing will be able to defeat the overdraft. All you have to do is continue using your bank account in the normal way so there is nothing that you have to wait for. Still, there aren't going to be many situations when you can't wait a few hours, or sometimes just minutes, before getting a pay day loan.
Interest Rates and Charges
As there isn't much difference in terms of speed between payday loans and overdrafts then, the biggest concern is going to be the expense that is associated with each sort of loan. Here you will find big differences.
When it comes to costs, that is where many people think that pay day loans become a bad deal. They take one look at the APR and think they must be extremely expensive. And of course the APR is high, but that's only because it should only take you a month to pay the loan back, not 12 months which is what the APR measures.
While the APR is not a fair way to judge a short term loan on its own, it can be used as a useful comparison between two loans of the same type. So that's what we're going to do now with overdrafts and payday finance.
In this case it is the payday loan which is the clear winner. They may have an APR in the thousands of percent, but unauthorised overdrafts have been known to be in the ten of millions of percent! So you should never have either out for a year, but clearly pay day loans are cheaper.
There is a proviso to that though. Payday finance has to be taken out for a fixed amount of time, whereas that is not the case with an overdraft. So if you pay back the overdraft within a day or two then it might be cheaper than a pay day loan. Much beyond that though and the loan is going to be cheaper.
About the Author:
Jackson Hall is an authority in all different financial affairs. His writings can be found frequently at Payday loans where you can find out more about payday finance.
1 komentar:
Pay day loan is cheaper and easier way to get an easy cash in hand. I got many good points in the post. Thanks for the brilliant sharing.
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