There are many types of loans but payday loans tend to be the ones that get the most negative press. However, they can be a better option over alternative loans in some cases so it is worth comparing them so that you can make the right choice.
What to Compare
– Costs of loans are really important as they can differ significantly both between lenders and loan types. It is good to have an understanding of what charges, fees and interest you will be expected to pay so that you know how much they will cost you. The loans are very different and these costs can vary.
With a payday loan you will be told exactly what you will be expected to repay and when. Normally it is one payment just after you are next paid which will include the repayment of what your borrowed plus the fees and interest. You will therefore be able to easily work out what you have to pay back.
With an overdraft it is not so easy. If you borrow money from your approved overdraft you will be charged at a certain rate and if you borrow more than this then you will be charged more, so you will have to calculate which you will borrow from and how much it will cost in interest and fees. However, there is no repayment schedule; the money will just be repaid as you have money paid into your current account. This means that it is hard to judge how long you will have the loan for and therefore how much it will cost you in total. If you know how much money will be paid into your current account and when, this will help you to estimate. The cost of an unauthorised overdraft has been found to be one of the most costly ways to borrow money, so it is wise to be cautious.
– Customer service is something which can be important with a lender. You want to make sure that if you have a question or problem that you can get through to them easily and get a polite and useful response. In order to test this it is wise to contact them yourself and see how they are, think about how easy it is to get hold of them and what they seem to be like. It can be good to ask a few questions to see how well they respond.
– Reputation can be important for some people. If you have heard bad things about a lender then you will be more likely to avoid it. You may have heard bad things about people getting into trouble with overdrafts or with payday loans and it may have put you off using one or the other. Although it is really wise to be cautious, it is a good idea to consider why people have a problem with these particular loans and whether it is something that is actually an issue for you or not.
– Availability can be an issue with overdrafts as you need to have a good credit record to get one. This means that there are many people that struggle to get them. With a payday loan, no credit check is done which means that you are more able to be accepted for the loan. The restrictions are less, in that you just need to be over 18, with a regular income and a bank account.
So you can see that there are quite a few differences between an overdraft and a payday loan. The cost can be cheaper for an authorised overdraft if you do not have it for long, but if you have an unauthorised overdraft for longer then it will be more costly than a payday loan. You do not need a credit check for a payday loan so it is available for more people. A payday loan is really quick to organise so if you need money in an emergency and do not already have an overdraft arranged then it will be much easier and quicker. A payday loan has to be repaid on a certain day so you cannot leave the loan outstanding for long, unlike and overdraft which can hang around for a very long time and therefore be much more expensive. A payday loan also has a limit on how much they can charge, so if you do not repay on time the charges cannot increase in definitely but they can with an overdraft.
Which is Best
Choosing which is best for you will very much depend on your own personal circumstances. If you have a poor credit record, for example, you may not have a choice as to which to go for. However, whichever you choose, make sure that you compare different lenders to make sure that you get the best possible loan for you with regards to cost and value for money.