Why are there three different names for a similar financial product? In fact, it’s simple. Each of these loans is a unique product tailored to the different needs of debtors.
With a product range like this one, it can be difficult and stressful to know which loan is best for you. Understanding the differences, advantages and disadvantages and how they work is the best way to make an informed decision.
In order to help you make an informed decision, you need to understand what defines a personal loan and how useful it is.
A personal loan is what could be described as a regular loan from a bank or other financial institution. This is not a loan whose sole use is for the purchase of a house or a car. Some people use personal loans to repay the high interest they have on their credit card or simply to get through an unexpected emergency.
These are the main features of a personal loan:
- A check of your credit history is mandatory before;
- The amount loaned is normally greater than private loans and payday loans
- The sums are larger because the creditor makes a greater verification of your antecedents (larger loan amount = more returns for the creditor)
- Personal loans are often divided into monthly, weekly, and so on.
- The terms of the payment are fixed in advance, so the debtor knows when he will finish his repayment
Although the choice of credit belongs to you, the personal loan is the best solution for people whose credit score is quite high.
Now that you know personal loans, let’s take a look at private loans.
Private loans can seem ambiguous, which might discourage you from applying to get them. Although loosely defined, private loans are a considerable financial tool for anyone looking for financing.
These are the main features of a private loan:
- A verification of your history is required;
- Funds are provided by individuals or private creditors (no banks or large financial institutions)
- Interests are versatile
- Creditors analyze your situation as a whole and pay less attention to financial details
- The amount loaned is usually less than personal loans, but higher than payday loans
If you are worried about your low credit rating or bad credit history, private loans are the best solution. Private creditors are usually more inclined to analyze your financial situation by taking other factors into consideration.
Payday loans are for people in desperate situations who need money urgently.
These are the main features of a payday loan:
- Approval the same day of the application
- Extremely high interest rates
- No verification done
- Loans are granted as soon as you have a job
- The loan must be repaid as soon as the next salary
Payday loans are a bad idea because they drag debtors into a vicious circle, that is, when the debtor borrows money again to repay the last loan.
What is the best option?
Personal loans and private loans are without a doubt your best option. The application and payment of these loans are easy, which will not damage your financial situation. However, do not forget to find a good creditor who will meet your needs.