Payday loan companies typically get a lot of heat from public opinion regarding their open-arms approach to subprime lending and traditionally higher annual percentage rates (APR). However, when looking at the pros and cons of both payday loan companies and banks, you may be surprised at the way their key differences complement any borrower’s needs and how much of an asset both parties are to the lending process.
If you ever need to make a decision between getting a loan from a payday loan company or a bank, there are a few differences you should know upfront. Take a look at this list of pros and cons below.
There are numerous ways that a typical payday loan company differs from a bank. Let’s explore more of the differences here:
DIFFERENCES BETWEEN THE LOAN OPTIONS
PAYDAY LOAN COMPANIES: A loan from a payday loan company is intended to be a short-term solution for an emergency or to pay a bill. A payday loan is typically for a small amount usually from $50 to $1000 dollars. They are not credit score based and typically have a 10 to 30 day term and are usually set for the consumer’s next payday.
BANKS: The typical bank offers a number of services and loans that the typical payday loan company does not. A few of their lending services include options for auto, home, student loans, or personal loans to name a few. Banks have strict credit and underwriting requirements for all of their loan products. The bank makes loans that are typically from $2,000 and higher based on the consumer’s approved amount. Depending upon the type of loan, the collateral could vary as well. The typical bank offers longer terms usually 24 month to 360 months depending upon the type and size of loan.
DIFFERENCES BETWEEN THE LOAN REQUIREMENTS
PAYDAY LOAN COMPANIES: Payday loan companies require some personal information in order to verify the eligibility for the loan. Such information include a valid government issued picture ID, proof of social security number, a recent bank statement, proof of income, proof of residence, and a checkbook. If you don’t have a check book, some lenders can print one for you.
BANKS: The consumer must provide the bank a significant amount of documentation so they can determine the eligibility of the consumer. The consumer must meet a minimum credit score, a minimum income level, and length of time on their job and residence.
DIFFERENCES BETWEEN THE RATES
PAYDAY LOAN COMPANIES: The rates for a payday loan company are regulated by the state. For example, $100 borrowed for 14 days in Alabama will have a finance charge of $17.50 and a total payment of $117.50 due on the due date.
Payday loans do not typically impact a consumer’s credit score or rating. Borrowers give the loan company permission to deposit or ACH their checking account for the full amount of the loan and fees associated with it in the event the consumer does not return to the store to pay the loan in full.
The consumer can also renew the loan after the full amount has been paid. However, if the loan is continuously renewed, it can be expensive as the annual percentage rate of a payday loan in Alabama is 456.25%.
BANKS: The rates charged by the bank are based on the credit worthiness of the consumer. The better the credit rating or score, the better the rate the consumer will be offered. The interest rates at a bank are fixed in most cases and borrowers repay the loan with a set amount on usually a monthly basis according to the terms of their loan agreement.
DIFFERENCES BETWEEN THE APPROVAL PROCESSES
PAYDAY LOAN COMPANIES: The consumers with limited or bad credit that face an uphill battle to obtain a loan from a bank may have a better chance at getting approved for a loan at a payday loan company. These lenders are more focused on the consumer’s ability to repay. Therefore the consumer’s need is satisfied by the payday loan company and does not face the embarrassment of being denied by the bank.
BANKS: Banks typically submit an inquiry to credit bureaus in order to determine the consumer’s credit worthiness. Each credit inquiry can affect or lower the credit score of the consumer and unlike with payday lenders, credit is usually the determining factor for getting approved.
DIFFERENCES BETWEEN THE APPROVAL TIMES
PAYDAY LOAN COMPANIES: The time it takes to complete the loan process with a payday loan company could be in a matter of minutes. The payday loan is a more convenient and quicker transaction. Some people have referred this to comparing the convenience of going to a convenience store versus a big box store. You are willing to pay a little more for the faster service at the convenience store rather than having to stand in line at the big box store or having to walk around to pick up a few items. In the same respect, you pay a little more for the convenience and quick service from a payday loan company instead of waiting for a lot longer period of time to complete the loan process at the bank.
BANKS: A typical loan process with a bank could take anywhere from 1 to 48 hours or even a few weeks to get approved for a loan.
Where you get your loan from can make a huge difference in your overall experience. We hope this outline helps you unpack how payday loan companies and banks differ and dispel some pros and cons you may or may not have known about each entity. Have more questions about payday loans or think you’re ready to get started? With Always Money, it’s fast and easy to get the cash you need today! Click here to find a store nearest you or call 1-888-618-9217 to get approved over the phone.