What is the difference between payday loan and refinancing?

How does each one work? If you are looking for a loan you do not need to rely solely on personal credit. Understand the best difference between Payday Loan and refinancing and find out which one is best for you.

When we need money to pay off debt, renovate our home, invest in our own business or even make the trip we have been dreaming about, one of the first options we think about is to apply for a Payday Loan.

Difference Between Payday Loan And Refinancing

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Practical and without much paperwork, this type of credit allows you to receive money in the account within 48 hours. Sometimes in even less time! Also, you leave nothing as collateral. To have access to it, it is enough to pass the analysis performed by the financial institution. This is even possible for those who are negative. But did you know that this is not the only alternative?

As yet little known, refinancing, also known as collateralised loan, is a type of credit to individuals, and one that gives the freedom to spend money as one wishes. The difference is that with it, you leave a guarantee and receive up to 70% of what it is worth.

To help you get a good deal, we’ve raised the key differences between Payday Loan and refinancing for you to compare and decide.

Difference Between Payday Loan And Refinancing: Lower Refinancing Interest Rate Is Key Advantage

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When looking for a loan agreement, one of the biggest concerns of clients is – or at least should be – finding lower interest rates and better repayment terms. In this sense, refinancing comes out ahead of the Payday Loan.

This is because, when refinancing, you need to leave a collateral, which can be a vehicle or a property. This makes the bank or financial institution more confident in lending you money. In other words, the amounts released are usually higher, with lower interest rates and more time to pay.

Difference Between Payday Loan And Refinancing: Secured Loan Also Has Disadvantages

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By contrast, from 3 late installments, the company that lent the money can now start a process to take the good. If the situation is not resolved, the vehicle or property is auctioned and the money raised is used to repay the debt. In vehicle refinancing, it is possible to achieve up to 70% of the car’s market value. And interest rates start at 1.49% per month. Already in refinancing property, you can receive up to 60% of the value of the apartment, house, etc., and the rates can be even lower: from 1.15% per month with up to 20 years to pay.

Refinancing is different from financing

Although the name refinancing property or vehicle may suggest that the loan has a specific purpose, the money can be spent the way the customer wants it. Therefore, apart from the terms of each contract, the main difference between refinancing and personal credit is that in the latter you leave nothing as collateral.

Do not own property or vehicle? Payday Loan is alternative

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For those who do not have a vehicle or property paid off in their own name, it is a good option to apply for personal credit. In this case, the bank or financial institution relies only on your word and your history to decide whether to lend the money or not. For this, they consult the status of their CPF in databases, such as the Credit Protection Service (SPC).

As there is no guarantee in case of default, the interest charged is slightly higher to compensate for possible risks, starting from 2% per month. However, the average is usually between 6% and 6.5% in most institutions.

It is noteworthy that who has the dirty name can also get the money. However, in these cases, in addition to the process being slightly longer, the interest rates may be higher. Remember that the greater the risk, the more banks and financial institutions will be on guard, and interest is one way to do so.

Refinancing is better… But you need to have repaid assets…

Because of the fees and longer payment term, refinancing of property or vehicle is much more advantageous. This, even for those who are negative, as, said before, by having a collateral as well, banks and financial institutions gain more confidence by lending you money.

There is only one, however: to apply for refinancing, it is necessary for the good to be settled in its name, which, it is convenient, is not for everyone. The good news is that, in addition to cars, houses and apartments, other types of property can be placed on the contract, such as motorcycles, trading rooms, land, etc. Remembering that the financial agency always makes a prior assessment of the asset to determine its value.

… And take the risk!

As for the risk of losing your assets, of course it exists. But the process is often slow and costly. Therefore, for companies, it is usually much more interesting to negotiate debt with you. Even so, do not risk it! In both Payday Loan and refinancing, the tip is to find installments that fit in your pocket and make repayments on time.

Are you looking for loan options to catch up? Enjoy that you are on FinanZero’s website and now make a simulation as you already checked the difference between Payday Loan and refinancing.

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