The growing acceptance of digital lending platforms in Nigeria means loan seekers can now access money in minutes. But as a borrower intending to get out of that unplanned financial fix, there is a tendency to be stuck in Knowing what is the difference between payday loans and quick loans.
When it comes to taking a loan via loan apps, the choices usually boil down to four major options; Quick Loans, Payday Loans, Personal Loans, and Business Loans.
Applying for loans today takes less than 10 minutes. The full approval process mostly could be anything from five minutes to 30 minutes, depending on how fast the lender receives and processes your documents.
What are Quick Loans?
Also known as short-term loans, quick loans are a form of installment credit that deliver a one-time payment of cash to borrowers. The borrowers then pay back that amount plus interest in regular, monthly installments over the lifetime of the loan, known as its term.
The lending process is quick and involves easy registration and verification.
Benefits of quick loans
As the name suggests, quick loans are available within minutes of application and help in settling your financial crisis. With quick loans, most lenders have an easy registration process where basic details are requested and verified.
The verification process is completed in no time to ensure money is disbursed. If you are eligible for a quick loan, the lender will immediately transfer the required funds into your account.
Many banks in our country have started offering this product along with regular loan products. Apart from banks, one can avail of loans from Non-Banking Financial Companies (NBFCs) and Peer-to-Peer lenders (P2P).
Features of Quick Loans
As explained, quick loans come in handy for that urgent financial need. Some of its features are listed below:
- Fast registration process
- Immediate verification
- Quick transfer of funds
- Online application
- Unsecured loans
- Credit score booster
What are Payday Loans?
Typically, a payday loan is usually a short-term, high-cost loan, that is due on your next payday.
Although it used to be available only with traditional banks, digital lenders have taken over and now offer payday loans to borrowers.
Features of a payday loan
The loans are for small amounts, and many borrowers set a limit on payday loan size. It is usually set at a certain percentage of the borrower’s monthly earnings.
A payday loan is usually repaid in a single payment on the borrower’s next payday, or when income is received from another source such as a pension or Social Security.
The due date is typically two to four weeks from the date the loan was made. The specific due date is set in the payday loan agreement.
Because a payday loan is tied to the borrower’s earnings, payment is usually made on the day they receive their salary.
In the past, the borrower issues a post-dated cheque but today, with the advent of a digital economy, they are made to authorise the lender to make automatic deductions when the payment is due.
Sometimes, the lender is also authorised to deduct the funds from any of the borrower’s bank accounts that has funds in them.
Payday loans in Nigeria are unsecured. That means, no collateral is required to access them. As a result, they tend to attract high interest.
Similarities between payday loans and quick loans
The similarities between both types of loans can be found mostly in their eligibility criteria. Because loan apps in Nigeria mostly operate by the same rules, the criteria for accessing both payday loans and quick loans tend to overlap.
Depending on the type of loan being applied for, the general eligibility criteria are as follows:
Both loans are usually available to individuals between the ages of 21 and 60.
Applicants should be either salaried or self-employed. Self-employed applicants are expected to have a proven source of income. In addition, borrowers should be residents of Nigeria. They are expected to have a good credit history as well as an active bank account. They also require very minimum documentation.
Difference between payday loans and quick loans
There are several key differences between payday loans and personal loans when it comes to meeting emergency expenses. Some of the differences are listed below:
Payday loans generally have much higher rates of interest than quick loans. They are also known to come with hidden fees and charges.
Payday loans can be easier to access, especially for people with limited credit history and other financial challenges. Some payday lenders are even known to offer loans to borrowers without a bank account as long as they have a source of income.
3. Impact on credit score
Most payday lenders don’t report to the credit bureaus. This means that only quick loans show up on your credit report. If you take out a quick loan and make payments on time, your credit score will climb, which will help you qualify for better loans and interest rates in the future.
Another major difference between a quick loan and a payday loan is usually the number of repayments you make.
In general terms, borrowers usually pay back a payday loan about a month or two after they take out the money.
With quick loans, you could pay your loan back in two to twelve months. However, this is not always the case and there is a lot of overlap between the two products nowadays.
A nairaCompare guide to getting loans in Nigeria
Most quick loans have zero physical documentation, and they can be applied online just by using your mobile phone. Though some banks provide quick loans, online lenders are the popular channels for availing them.
By visiting the official website of the lender or by downloading their app, you will be able to apply for a loan.
You will have to enter your personal and income details for loan processing. The lender might ask you to upload the proofs online for verification, following which your loan will be approved or rejected.
After entering basic details such as an address, bank details, photograph, BVN, etc. upload the valid documents. The app will review your request and the money will be disbursed to your bank account post-approval.
If you are having difficulty deciding on the type of loan to apply for, nairaCompare has put together a list of the different online loan providers with their rates for you to choose from.
Other things to note before applying for a loan
There are other factors to take into consideration before you apply for a loan. Having this information n hand will make the loan application and approval process seamless.
Check your credit score and reports for errors that could drag down your score. If your credit isn’t in great shape, it is recommended that you hold off on applying for a loan and instead work to improve your credit.
Your take-home pay affects your ability to pay off a loan, so you’ll need to have proof of income for your application. This applies whether you are an employee of a small business owner.
If you’re a self-employed applicant, you’ll need tax returns for at least the past two years and bank statements that show your income.
Monthly debt payments
In taking a loan it is important to know your monthly debt obligations.
If the margin between your income and your debt repayment is slim, you may not qualify for a new loan. This is known as the debt-to-income ratio.
A loan application will likely require you to list certain obligations, typically rent or mortgage payments and existing payments toward credit cards or other debts.
Employer’s contact information
In some cases, for employed borrowers, potential lenders will probably ask for your current employer’s contact information and maybe a past employer’s information.
Your current and past employers may be contacted as references or to verify income and employment dates.