If you think about taking a loan, the first place that comes to mind is a bank. Banks are massive financial institutions that usually offer a variety of different types of loan products. Common loan products such as house loans, personal loans and car loans have become very popular. Banks also lend money to companies and even governments. All financial dealings in a bank are regulated by the Central Bank, which is the largest institution.
The Central Banks tracks the amount of cash flow in each bank registered in the country. Every banking institution is required to deposit a substantial amount of money with the Central Bank. This helps to prevent unnecessary losses to the company’s economy. In case a bank’s financial reserves are running low, the Central Bank can use the deposits in order to plug in the gap. Previously, taking a bank loan was very easy.
By 2006, the economy was heading downwards. Because of the ease with which it was easy to take a loan, many people were defaulting. Individuals who had taken out mortgages on their properties were finding it difficult to make monthly payments. By 2008, the global economic crash put forth a harsh truth: giving out money without properly verifying an applicant was a bad idea.
The market crash put many companies, brokerage houses and banks completely out of business. Governments lost trillions of dollars, the effects of which lasted for several years. Even today, many companies and corporations are still picking up the pieces.
The crisis led to harsher regulations and stringent policies for banks who offered loans. The Central Bank, which is the body that decides the market interest rate as well as sets guidelines for banks to follow become significantly stricter. For people who could easily take a loan before, this became a major problem. Even those with verified credentials were rejected simply because banks were not convinced. As a result, people had to look for other options. And that is the reason why payday loans are so popular today. They are also known as payday advances.
However, most people are still in the dark about payday advances. What are they? What’s so different about them as compared to bank loans? In order to make it easy for people to understand what payday advances really are and how they are different from conventional bank loans, here is a brief guide:
Their Nature
Banks offer a plethora of different types of loans. If you apply for a personal loan, the interest rate charged will be slightly different. Personal loans are standard cash loans, which must be paid over a period of three to five years. On the other hand, home loans are very different. When you apply for a home loan, the bank wants assurance that the money will not be used elsewhere.
As a result, a crucial part of the application process is to provide proof that you are buying residential property. A bank representative may even visit the property and view all documentation before making comments on the application. Once the bank has reasonable assurance that the money will be used for the purchase of residential property and that you can pay it back on time, they will release the funds.
On the other hand, payday advances are very different. Most companies/lenders that offer payday advances don’t really care what you want the money for. Since the amount itself is so insignificant, payday lenders aren’t really bothered about what you do with the money. When you apply for a payday loan, you don’t have to worry about a representative from the company visiting your place to find out the purpose of the loan.
The Application Process
If you want to apply for a bank loan, prepare yourself for a tedious process. When you visit the bank, a representative is going to sit down with you and conduct a sort of informal interview. He will ask questions about where you work, your occupation, your place of residence and the number of dependents.
They will even ask questions such as whether you own a house or not. Ever since the market crash, banks have to follow very strict guidelines before giving out loans. Before forwarding your application, the representative will want to make sure that you are not wasting their time.
If you qualify, you will be asked to fill out a form. Most loan applications are pretty lengthy and require you to fill out all the questions. Everything that you just said in the interview must now be written down in their respective boxes. At the end of the application is an attached page entitled “Terms and Conditions.” Go through the page in order to make sure that everything is confirmed beforehand. There’s also a non-refundable processing fee that you must pay before the application is forwarded. It takes approximately two weeks, or a minimum of ten business days, for the bank to process your application.
On the other hand, payday advances have relatively lax requirements. You don’t have to go through the troublesome experience at all. Instead, some companies even offer the option of filling out the application online. You can just fill out the form, and attach relevant documents from the comforts of your own home. The whole process is significantly easy. Once the form has been filled out and sent, it takes usually two to three days for the company to process the application and credit the loan amount.
The Loan Amount
Perhaps the biggest difference is in terms of the loan amount. While you can get a loan from a bank, it is usually payable in monthly installments. On the other hand, if you get a loan from a payday company, you must pay the whole amount back on your next payday.
While banks offer loans ranging from a few thousand pounds all the way up to millions (for companies), payday advances don’t go higher than 1,000 GBP in most cases.
