- Emma Parker
- January 31, 2019
With myriad of borrowing options available on the market, you often get flustered to choose the right one. Regardless of your research, your doubts stay unresolved and you opt for a lending service that you think is suitable for you.
When you take out a loan, your first goal should be grab a deal with lower interest rate, but it is not feasible unless you know about each loan. Peer-to-peer lending and guaranteed payday loans direct lenders confuse borrowers a lot. This blog gives a complete difference between both loans.
Payday loans – a quick alternative to finance short-term needs
When you need short-term funds for any purpose such as repairing a car, buying a machine and paying medical bills, you can take out payday loans at once. You just have to submit an online application form and your account will be loaded with money. You will pay back the whole debt on the next payday.
Even if your credit history is not favourable, direct lenders will not deny you lending money. However, you will end up with paying high interest rates. With a good credit report, you can negotiate for lower interest rates with the lender. The term for these loans varies from two weeks to a month. Your account will be debited as immediately as you receive your salary.
Peer-to-peer lending – another alternative for financing unexpected needs
Peer-to-peer lending system is completely different from payday loans. Here, you do not borrow funds from a loan company and financial institution, rather you borrow money from an independent individual. The individual lender only decides the interest rate and term. However, not all borrowers feel secure using peer-to-peer lending option because it does not exist like a traditional brick-to-mortar lending system.
Now that you have known the basic difference between peer-to-peer and payday loans, here is the difference between both of them.
Payday loans come with high interest rates; it can be 80 to 100%. However, peer-to-peer loans are relatively cheaper than the former loans. Interest rates usually vary from 5% to 30%, which means your interest payment is not going to be three or four times greater than you have owed.
Payday loans are paid in lump sum; no instalment option is available even if your credit history is excellent. If you fail to pay back your debt within two-weeks, you will have to take out a rollover loan. It causes additional fees and interest. If it continues, you will end up with a debt spiral. Peer-to-peer lending allows you to pay your debt in fixed instalments.
If you pay your payday loan before your scheduled date, you will pay prepayment fees. In case of defaults, you will not only pay interest but also late payment fees. Peer-to-peer lending option accepts early payments without prepayment fees. If you fall behind your payment, you will pay only interest as penalty but not default fees.
Since payday loans generally help borrowers with bad credit histories, there are high chances of being caught up in a debt web. You get what you quote and your repayment capacity is hardly taken into consideration. However, a few reliable direct lenders lend after a careful assessment of your reimbursement capacity. Peer-to-peer loans are approved once an individual is certain about your repayment capacity. If the individual detects high default risk, your application is turned down at once.
In a nutshell, you can now clearly decide which lending option is suitable for your needs. When you need a loan, make sure that you have done proper research to get the best deal.