Cash Loans
Most people will encounter a time in their lives when they need access to immediate cash. Unexpected expenses crop up and your monthly income simply won’t carry you to the end of the month. An unexpected medical expense, a car problem or miscalculated spending can throw your finances off track mid-month.
Taking out a loan is a straightforward way to gain control of your finances. A personal loan and a payday loan are the two main types of loans that will provide you with immediate cash to cover your unique personal expenses.
Personal Loan
A personal loan is a cash loan that can be used to finance anything, an unanticipated expense, new furniture, or a holiday. You can opt for either a secured or unsecured personal loan. A secured loan requires that you provide some form of collateral as security, and in turn it generally provides you with a low interest rate. Conversely, an unsecured loan does not require you to provide any collateral and thus charges you higher interest.
A personal loan will provide you with immediate cash once your application has been processed, depending on the bank or loan provider. Personal loan providers generally provide repayment period flexibility, offering anything between 24 and 60 month repayment periods. Interest and monthly repayments are determined by your respective loan terms and your credit risk profile.
Unlike a home loan or debt consolidation loan, a personal loan does not dictate how you should spend the loan money. However, reputable lending institutions are required to conduct a credit check under South-Africa’s National Credit Act. You may be denied a personal loan if you have a bad credit profile.
Payday Loan
A payday loan, also known as a cash advance loan, is used to cover your expenses until your next payday. This type of loan will provide you with money fast, and is a viable option if you find yourself short of cash near the end of the month. If your application for a payday loan is accepted, it will usually only take a few hours to process your money.
The amount that you will be allowed to borrow will differ from one provider to another. Generally, first time payday loans offer R500. Subsequent payday loans increase by up to R1000.
The payday loan, like the personal loan, is available as a secured or an unsecured loan depending on the lending institution. However, even a secured payday loan will not require you to be a homeowner. Banks very rarely offer payday loans, so beware of possible scams that lurk on the internet. Investigate your options and conduct a thorough background check on the loan provider.
When applying for a payday loan, you will be required to prove that you have an active bank account and that you are currently employed in order to be considered. Some providers will also conduct a credit check to ascertain whether you are a suitable candidate.
A payday loan is intended for short-term use, as its name implies – it should ideally be paid back when you receive your next paycheck. This type of loan is more effective if it is paid back quickly. The repayment period is generally around 31 days, a monthly wage cycle. You will pay interest on the amount that you borrow, usually in the region of 20%. If you default on payments, this amount will increase with every new month. It is possible to accrue a significant amount of debt if this loan is not used on a short-term basis.
Things to Consider
Personal and payday loans are great when you need cash and you need it fast, especially if you don’t have a credit card and you don’t want to put a strain on your relationships by asking friends or family members for money.
Personal loans are designed to offer you small to moderate amounts of money with a flexible repayment period. The lending criteria for a personal loan are somewhat more stringent than for payday loans.
On the other hand, payday loans are designed to provide you with a small amount of immediate, hassle-free cash to see you through to the end of the month. The interest rate is not as competitive as other loans, but payday loans are definitely a great way to deal with unforeseen financial hiccups mid-month. As with any debt accrual, weigh up which loan suits your individual financial needs.