What is the difference between payday and bank loans?

When we talk about bank loans, we tend to be referring to traditional unsecured loans that high street banks offer their customers. Bank loans can be a good choice for consumers looking to spend big on something like home improvements, an extension or a car. They are repayable over a set number of monthly instalments over a term of several years. Most people borrow somewhere between £2,000 and £25,000 and banks require good credit scores and a relatively high level of income before they’ll consider lending.

Short term loans are different because you can apply quickly and easily online and have the funds in your account very quickly if you are successful. However, the amount you can borrow is usually far lower and repayment terms are shorter, with instalments typically stretched over between one and six months.

Although these types of loans are easier to get for those without a perfect credit score, interest rates are much higher as payday lenders are taking on significantly more risk.

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Representative Example: Borrow £400 for 4 months: 3 monthly repayments of £156.09 followed by a final repayment of £156.07. Total repayment £624.34. Interest rate p.a. (fixed) 288.35%. Representative APR 1,267.9%. 

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