If you are looking at guaranteed payday loans you should know the difference between them, which are short term loans, and conventional loans which are long term loans. That's what this article will explore, as well as the best way to use each kind of loan.
How Conventional Loans Work
To better understand guaranteed payday loans, we'll first go over what the main features of conventional loans are and what they are used for. So first of all, the major difference in the term of the loans. It can be several years with a conventional loan, whereas with a pay day loan it is only a month.
The main reason to take out a conventional loan is so that you can get something which otherwise it would take you a long time to save up for. This can apply to a great many things, from cars to holidays. So the advantage is that you can get something now that you would otherwise not be able to get for a long time.
Due to the long period of time over which you are going to have to make the repayments though, the lender is presented with a problem. How can they know whether you'll be able to make all of the repayments when you don't even know if you'll have your job a year from now? They can't, which is why they at least look to the past in the form of a credit history to see whether you've been able to repay loans before.
Payday Finance
Now that we have considered the main features of conventional loans and how they are best used we will move on to our main focus, guaranteed payday loans. In this of case the major difference is when you have to pay the loan back. In this case it is a month instead of years. This simple fact has a number of consequences.
First of all we'll look at the differences in which the two loans can be used. With a conventional loan the advantage is that you can pay back a large amount of money over a long period of time. This is a major difference from payday finance, with which you can't get anything which you wouldn't be able to pay for with a single pay cheque.
The consequence of this is that you're not going to be making luxury purchases with a pay day loan, instead you'll be dealing with emergency situations. It's probably going to be something that you would normally have to pay for anyway, it's just that you don't have the money for it for whatever reason that month.
A common example of this sort of situation is when you have to make a payment on a utility bill. If the alternative is that you are going to lose the service then of course this is an emergency situation. But it is not anything that you would not normally be able to pay for.
The second main difference comes in the way that you have to apply for the loan. A conventional lender needs lots of information about you because they have no way of telling directly whether you are going to be able to make the repayments. That is not the case for the payday lender though.
As you have to repay a payday loan all in one go the following month, the payday lender can tell whether you'll be able to do that or not. All they have to know is how much you make in a month. Which is why that is pretty much all they will ask and they do not make credit checks.
Payday Interest Rates
The biggest similarity between the two kinds of loans is the interest rates. If you've been judging pay day loans by the APR they offer that is going to sound like a ridiculous statement, but it's true. The reason that there is such a big difference in the APR rate is that a pay day loan only lasts a month and the APR is measuring how much you would have to pay if it lasted 12 times longer.
How Conventional Loans Work
To better understand guaranteed payday loans, we'll first go over what the main features of conventional loans are and what they are used for. So first of all, the major difference in the term of the loans. It can be several years with a conventional loan, whereas with a pay day loan it is only a month.
The main reason to take out a conventional loan is so that you can get something which otherwise it would take you a long time to save up for. This can apply to a great many things, from cars to holidays. So the advantage is that you can get something now that you would otherwise not be able to get for a long time.
Due to the long period of time over which you are going to have to make the repayments though, the lender is presented with a problem. How can they know whether you'll be able to make all of the repayments when you don't even know if you'll have your job a year from now? They can't, which is why they at least look to the past in the form of a credit history to see whether you've been able to repay loans before.
Payday Finance
Now that we have considered the main features of conventional loans and how they are best used we will move on to our main focus, guaranteed payday loans. In this of case the major difference is when you have to pay the loan back. In this case it is a month instead of years. This simple fact has a number of consequences.
First of all we'll look at the differences in which the two loans can be used. With a conventional loan the advantage is that you can pay back a large amount of money over a long period of time. This is a major difference from payday finance, with which you can't get anything which you wouldn't be able to pay for with a single pay cheque.
The consequence of this is that you're not going to be making luxury purchases with a pay day loan, instead you'll be dealing with emergency situations. It's probably going to be something that you would normally have to pay for anyway, it's just that you don't have the money for it for whatever reason that month.
A common example of this sort of situation is when you have to make a payment on a utility bill. If the alternative is that you are going to lose the service then of course this is an emergency situation. But it is not anything that you would not normally be able to pay for.
The second main difference comes in the way that you have to apply for the loan. A conventional lender needs lots of information about you because they have no way of telling directly whether you are going to be able to make the repayments. That is not the case for the payday lender though.
As you have to repay a payday loan all in one go the following month, the payday lender can tell whether you'll be able to do that or not. All they have to know is how much you make in a month. Which is why that is pretty much all they will ask and they do not make credit checks.
Payday Interest Rates
The biggest similarity between the two kinds of loans is the interest rates. If you've been judging pay day loans by the APR they offer that is going to sound like a ridiculous statement, but it's true. The reason that there is such a big difference in the APR rate is that a pay day loan only lasts a month and the APR is measuring how much you would have to pay if it lasted 12 times longer.
About the Author:
There is certainly plenty more to discover regarding payday loans and Sam Young, who has expertise on the subject, has written about it in detail at guaranteed payday loans.
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