Payday loans and loans with benefits are quite popular as they are perfect to fund small emergencies. However, both loans are ideal in different circumstances. Small loans often help tide you over when you are in a tight spot, but high interest rates are a common concern. It should not come as a shock that many people fail to take notice of their repaying capacity and eventually find themselves plunging into an abyss of debt.
What most people know about these loans is that they are small emergency loans and that payday loans are aimed at full-time employees, while loans with benefits are aimed at the unemployed. This blog discusses similarities and dissimilarities between both types of loans:
Similarities between payday loans and loans with benefits
Here are the similarities between payday loans and loans with benefits:
- They come with a small sum of money
Payday loans and loans with benefits do not let you borrow more than £1,000. Be informed that this is the maximum limit of the loan. It does not insinuate that you can get the nod for this much money. Normally, lenders put a cap of £700 when you apply for a payday loan. Of course, getting approval for £1,000 is out of the question when you are out of work. It is more than tough to get approval for such an amount of money based on your passive income, including benefits.
- The repayment length is the same
Payday loans and loans for people on benefits are required to be paid back within a period of 14 days. The risk is quite high, though people do not realise it at the time of borrowing. You are to pay interest on top of what you borrow. Just ask yourself how you would be able to clear the debt when you could not arrange the principal from your pocket. It is always suggested that you carefully understand the consequences of falling behind on payments.
- Payments are not flexible
You will be given a due date on which you are to pay off the whole of the debt. The loan is normally due to be paid back two weeks after the disbursal date. If you miss the date, the loan will be rolled over, meaning you will have another 14-day period to settle the outstanding balance. Your lender will not let you pay back money in other forms. Regardless of your financial situation, you will have to strictly adhere to the payment schedule.
Dissimilarities between payday loans and loans with benefits
Here are the dissimilarities between payday loans and loans with benefits:
- Payday loans can be no refusal, but not loans with benefits
Payday loans involve no credit check, and hence, there is no risk of losing your credit points. Your bad credit history, furthermore, does not influence the lending decision of a lender. This is why they are called no refusal payday loans in the UK from direct lenders. However, it means the possibility of securing a payday loan is very high. It is not subject to a 100% guarantee. Getting a loan on full guarantee depends upon your affordability and repayment capacity.
Loans with people on benefits do not work the same way. A lender would check your credit report. Hard inquiries will be made to your credit report. If they find that your previous track record of payments is not stellar, they will be reluctant to lend you money. Qualifying for loans with benefits is quite hard because the risk of default is high.
- You do not need a side job for loans with benefits
A payday loan cannot be approved when you do not have a full-time job. However, it does not mean that freelancers cannot apply for these loans. You must have a stable income source to qualify for payday loans; however, loans with benefits do not require any income source.
Of course, your repaying capacity will be thoroughly checked, which is defined by your income. Because you are unemployed, you can use benefits as your income. It is a good idea if you have a side gig because it improves your chances of repaying capacity.
- Payday loans are more expensive
Payday loans carry very high annual rates. Sometimes, these rates can be as high as 1500%. It is always advisable to use these loans when you are in urgent need of money. Loans with benefits are less expensive in relation to payday loans; however, under no circumstances does it suggest that you should throw your caution to the wind while using these loans.
Do not forget that you have no idea how long it will take to land a new job. It means you are supposed to pay off your debts from your benefits and savings. Chances are you find yourself in a tighter spot. Things will become very complicated down the line if your finances go out of control.
- Doorstep service is available for loans for benefits but not for payday loans
Most people are known loans with benefits as doorstep loans. Actually, they come with a doorstep service. You can schedule a visit with one of the representatives of a lender who will discuss your credit needs and hand you the money. The collection will also be made in person.
This facility is not available for payday loan borrowers. The money will be directly sent to your bank account. It is vital to note that doorstep service is very expensive. A lender will charge additional fees. Make sure you can afford to pay off the debt on time.
The final word
Payday loans and loans with benefits have some similarities as well as dissimilarities, but they are both expensive. Remember that you should use these loans only when you are in urgent need of money. Check your repaying capacity and carefully research interest rates from different lenders. Try to choose a deal that best suits your financial circumstances.
It is generally suggested that you create a budget and build an emergency cushion. It will help tide you over during financial emergencies.
Source: guest-post.org
