Signature Loans vs. Payday Loans – What’s Right for Me?
If you need emergency cash, you may be thinking about getting a signature loan. Signature loans are a reasonably good way to get some extra cash when you need it, but they may not always be the best choice.
In this article, we’ll give you some more information about signature loans and payday loans, and help you decide which option may be right for you.
Understanding Signature Loans
Signature loans are exactly what they sound like. You can get a loan, often up to thousands of dollars, with just your signature. Unlike a car title loan, for example, there is no need for you to put up any kind of collateral. Then, you’ll usually repay the loan month-by-month, based on your loan agreement.
Basically, signature loans are a type of personal loan. Because there is no collateral required, signature loans usually have a higher interest rate (APR) compared to a loan that is secured by collateral but are still a good choice if you need cash.
However, the biggest catch of a signature loan is that you need a reasonably good credit score to apply. The higher your credit score, the more likely it is that you will be approved – because the lender will not see your loan as risky. Conversely, though, this means you may not be able to get a signature loan if you have bad credit.
Payday loans are another type of emergency loan and are intended to be very short loans that provide you with emergency funds for a few weeks until you can make it to your next payday. Most payday loans must be repaid within 2 weeks, or up to a month in some cases.
Just like a signature loan, there is no need for you to put up any collateral for your loan. However, payday loans also do not require traditional credit checks. This means you can be approved even if you have bad credit. However, it also means that payday loans usually have a higher interest rate than signature loans.
Should I Get a Payday Loan or a Signature Loan?
This depends on how much money you need, how fast you need it, and what you need it for. In general, payday loans are a better option if you need fast emergency cash – for several reasons.
- Signature loans require credit checks – If you have bad credit, you will likely not be approved for a signature loan, making signature loans a bad option if you have a sub-par credit score.
- It takes longer to be approved for a signature loan – Because the lender must process your application and check your credit, it can take days to be approved for a signature loan.
- Signature loans do not offer same day funding – While many payday lenders offer same-day cash deposits after you’ve been approved, this is rare among signature lenders, so you’ll have to wait longer to get your cash.
If you don’t need your cash right away and you have a good credit score, signature loans may be cheaper in the long run. But if you need emergency cash right away, a payday loan is your best bet.
Know Which Loan Is Right for You!
Both payday loans and signature loans have their own pros and cons – but if you need emergency cash fast, it’s hard to beat the convenience of a payday loan. Do a bit of comparison shopping between the two, and you’re sure to make the right choice!