Several times people think that financing and Payday loan are synonymous, however, are different financial services that financial institutions offer to consumers.
We will explain the differences between the two services to help you understand which scenario is right for you.
What is Payday Financing and Loan?
Payday loan is a financial service with a contract between the client and a financial institution, which the client receives a value granted by the institution that must be returned within a determined interest period. The use of the money does not have a specific destination, that is, the client uses the money in the way that he wishes. The bank may or may not ask the client for some guarantee to grant the loan.
Financing is also a financial service with a contract between client and a financial institution, however, the amount awarded has a specific destination (which is in the contract), for example, the acquisition of a property or a vehicle. Usually the bank asks for a guarantee to grant a financing, for example, fiduciary alienation or mortgage.
What are the differences between financing and Payday loan?
We have seen that financing and Payday loan are distinct services and with different utilities for consumers. In addition, there are more differences between them.
The time for payment can also vary greatly according to the amount granted by the bank.
Normally, the amount of the financing is much higher than the loan, influencing the interest rates charged. The interest rates charged are different, this difference is due to the difference in values, and also by the guarantee that the client offers to the bank, where normally there is no guarantee in the loan and in financing something is required as collateral.
The banks carry out a credit analysis of the applicant to decide whether to grant the money to the person. Usually, because it has a higher value, the financing can be a little more bureaucratic to get, since the loan varies greatly with value and risk. Remembering that in both each bank it defines whether or not it concedes according to its internal rules.
Financing or Payday loan?
To find out what service you need, whether it’s a Payday loan or financing, put your goal on paper and do a financial planning.
- What is the amount required
- What do you want to buy with the
- What is the need for credit (short, medium or long term)
- How long can you pay the installments (according to your monthly income)
Analyze well the CET, Cost Effective Total of the credit that will be granted, including all related charges.
We can say that financing is good when you plan to buy a high value asset, such as a car or an apartment.
Financing offers the good conditions for this need through a lower interest rate, and longer payment time.
You have to be willing to offer something as collateral, and face more bureaucracy with various documentation to fulfill the request.
The Payday loan is ideal for quick cash needs moments to use the way you want, it can be for payment of debts, purchase of something desired, vacation, etc.
In more traditional banks, there is a bureaucracy to be able to take the money into account, such as having an active bank account, documents and proof of loan application.
There are already more innovative institutions offering Payday loan online, which is no bureaucracy, and you can carry out the entire application online and without any document or voucher.
We hope that we help you understand the difference between financing and Payday loan, and also to decide which you need to meet your financial need.