You’ve finally decided to get into shape because your current shape is completely unrecognisable. That New Year’s resolution list, you knocked out on the beach 5-months ago (with beer in hand) still has every item clearly unticked and that’s stirring up a nasty cocktail of anxiety and guilt. To make matters even worse, Steve from HR has been banging on about how much better he is feeling since he decided to pick up an iron horse and hit the mountain bike tracks out at the vlei on Saturday mornings.

The decisions been made. Now all you need is a bicycle…

You figure it makes more sense if you pick up a second-hand “cheapie” online to see if you get into the dirt and spandex vibe. If you make it past month three, without tossing the bicycle out with the trash, then you might consider upgrading to something with a sofa seat and extra gears. Do they even do a sofa seat?

A 20-minute Google investigation has given you a clear idea that you are in for a “cheapie” at R5 000.

You really don’t want to spend anything less, because if the wheels literally come off, and you find yourself in a ditch, you know for a fact Steve would distribute that image through the company WhatsApp channel quicker than a Kardashian product-endorsed selfie.

Some things money can’t buy back- Like your self-esteem

Now it’s just a question of the bucks.

You picked up a pay cheque last week, which leaves you out by 3 weeks, and there is no way you are going to be able to pick up the bicycle and make ends meet.

What about a quick loan?

Another 10-minute Google search has left you with a more pressing question. You’ve decided you want to get into shape. You’ve decided you want to get your hands on a R5 000 loan.

But can anybody provide you with the answer to this question:

What’s the difference between a Payday and a Personal loan?

There are several differences, but here are the major ones:

  1. A Payday loan is generally more suitable if you want to borrow less than R5000
  2. It’s quicker to get your hands on a Payday loan than a Personal Loan (24 hours)
  3. A Payday loan is payable in full the next time you get paid (then the credit line is extended)
  4. A Personal loan is more suitable for larger amounts of money
  5. It takes a little more time to get a Personal loan approved, especially when you are looking to borrow larger sums of money in the region of R50 000 – R200 000.
  6. Personal loans have fixed repayment terms which are negotiable at application stage

The idea with a Payday loan is to provide consumers with quick access to cash. You can apply online and if your application is successful, you can have the money in your account within 24hours. No paperwork and no fuss.

From a lenders point of view, Payday customers are great candidates for a small line of credit (that’s why Payday loans are generally capped at R5000). The lender will run a quick credit check on the applicant to make sure they aren’t blacklisted and if the credit bureau, doing the check, passes back a favourable result and the lender has established affordability (via proof of income), then a small loan will be made available.

If the person applying for the Payday loan honours their side of the bargain and pays the money back when it’s due (payday), the lender is in the position to start building up their own individual credit history and provide an extension of the loan.

That means a Payday loan, once repaid, can become an ongoing line of credit.

Originally you might be granted a R3 000 loan, but if repaid in full, then you might be extended R3 500. Make sense?

There’s only one real problem with a Payday loan and the reason why it’s not suitable for everyone.

What happens if you need to get your hands on a lot more than a few thousand Rand?

That’s the big issue.

Let’s assume for a second your need extends further than a second-hand mountain bicycle and you are looking to borrow money for a wedding or for tuition, what options do you have then?

In that case a Personal loan is a much better option. You might need to wait a little longer (perhaps another 24hours), but the wait will be worth it for three reasons:

  • You can get your hands on the amount of money you need
  • A Personal loan isn’t repayable on the next payday. It’s repayable over a much longer period (several years if you want) which creates a more favourable personal cashflow scenario for you.
  • The amount of interest you will be charged will be lower

There are different horses for different courses, and when it comes to loans, that’s just as true. If you want to get your hands on a few thousand Rand, and you are in a hurry, then a Payday loan might be the answer for you. If you are looking to borrow a much larger sum of money, with a view that you will take a couple of months or even years to repay the money, then a Personal loan is the right solution for you. You can apply for a personal loan through MoneyShop and we will match you with the best reputable loan provider for your profile!

But at the very least, you now know the difference.

Let’s hope Steve doesn’t get the opportunity to snap that “bottom of the ditch” shot 🙂

Until next time.

The MoneyShop Team