Amara walker January 4, 2024

Urgent loans are small cash loans known to help subprime borrowers when they are in need of money during emergencies. Banks do not provide these loans but direct lenders do. These loans are commonly known as payday loans, text loans and sometimes bad credit loans as well.

Whatever the name under which you are lent the money, you will get a small sum to be paid back in full on the due date, typically within a period of 15 days. As these loans are aimed at subprime borrowers, they are known as urgent loans for bad credit.

On the contrary, both banks and direct lenders offer personal loans. These loans have some similar features to urgent loans. For instance, they do not require collateral even if you borrow a larger sum, but an unsecured loan is not simply another word to advertise urgent loans. They are both different types of loans.

Small personal loans can be the same as urgent loans

Personal loans are unsecured loans, and they are required to be paid back over a period of months. The repayment length of these loans can be up to one and a half years. These loans can help fund big expenses such as weddings, vacations, and buying appliances or gadgets. These loans are also crucial for improving your credit score.

As these loans are paid down over a period of time and fund big purchases, their size will be bigger. In most of the cases, the minimum amount you can borrow is €5,000. However, there are a few direct lenders that provide personal loans up to €2,000.

These lenders might be offering cash loans under the name of personal loans. Thinking that you are getting money at the terms and conditions of a personal loan, you put in the application form without further ado.

The fact is that the maximum amount displayed on their websites is to attract your attention. This is not a promise from a lender that they will approve this much money. The lending decision will be made only after the perusal of your credit score and income statement. At that time, your lender can cap on €500 or €700 that you will have to repay in full on the due date. Interest rates will be quite higher than personal loans.

How personal loans are different from urgent loans

Urgent loans and personal loans work differently. Here are some highlights:

  • No careful assessment of your repaying capacity

Urgent loans are easy to obtain. In fact, your credit score is also not checked as they are sought after by subprime borrowers only. A lender will look at your income to determine your affordability.

However, they will make a lending decision based on the financial details you provide in the application form, but personal loans involve careful deliberation. Since the size of loan is big, you will have to submit your income statements and related documents.

Your credit report will also be closely watched to know your credit score. Loans online in Ireland cannot make any specific determination of your repaying capacity while personal loans can be difficult to qualify for when your credibility is called into question.

  • The risk of falling into debt

The risk of falling into debt is much higher with urgent loans as they carry very high-interest rates. The amount is to be paid back in full on the due date. You may find it difficult to clear the dues, which will result in rolling over the loan that continues to add up the size of the debt.

However, with personal loans, the scenario is different. A fixed monthly instalment will go towards your loan, reducing its size. These loans are more manageable. In the event of missing a payment, this will add to your next instalment with accrued interest. It is still manageable to deal with your dues.

  • An impact on your credit score

Personal loans are known for improving your credit score. Each time you pay down an instalment, your lender will report it to credit bureaus. Timely payments will help build up your credit history, and missed payments or defaults will do the reverse.

Unfortunately, urgent loans can help you build or improve your credit history. The borrowing amount is so small that no credit check is made. While these loans cannot fix your credit history, they can damage your credit score when you make a default or miss a payment.

The sabotaging effect of your credit score could be so strong that your credit score will fall into the category of “very poor credit”, and this will kill your chances of getting money at a lower interest rate down the line. Your application will most likely be turned down.

When should you use urgent loans and personal loans?

Here are the circumstances when you should use urgent loans:

  • You need money for unforeseen expenses and you do not have savings to fall back on.
  • You are completely sure that you will repay the debt on the due date.
  • Do not use these loans for recurring expenses like rent, groceries, utility bills, and unnecessary expenses like shopping.
  • Drop the idea of using these loans for anything you can put on the back burner.

Here are the circumstances when you should use personal loans:

  • You need a larger sum of money for unexpected and planned expenses.
  • You want to improve your credit score. A credit builder loan with a repayment length of 6 months is ideal to fix your credit rating issues.
  • You are absolutely sure that you will not face difficulty keeping up with payments.

The bottom line

Urgent loans and personal loans are not generally the same loans. However, a few lenders are out there selling small cash loans under the name of personal loans. You can be charged very high interest rates and end up with a small online loan instead of a personal loan. Do proper research.