February 13, 2009, Newsletter Issue #45: Comparing Payday Loans and Traditional Personal Loans

Tip of the Week

There are a number of differences between payday loans and traditional personal loans. However, perhaps the most significant differences between these two types of loans include the type of information required during the application process. This is because payday loans are granted based on the applicants income while traditional personal loans factor in a variety of other factors such as credit history and assets. Therefore, traditional loan applications are significantly more detailed than payday loan applications. A payday loan application may only include proof of identification and income as well as a recent bank statement. Based on this information, the lender can determine whether or not the applicant is capable of repaying the loan based on his income and can typically obtain authorization to withdraw the funds necessary to repay the loan in full on the applicant’s next payday.

The repayment period for payday loans and traditional personal loans are also typically significantly different. Most payday loans specify the loan must be repaid in full within the second payday after the loan is approved. However, traditional personal loans usually have a significantly longer repayment period which may be upwards of one year. Some traditional loans may even have repayment periods of as long as 30 years.

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