When a bill arrives overdue and with shutoff warnings attached, it's tempting to take the first loan offer you find to settle your financial obligations. However, quick loans vary greatly depending on who's offering them and the type of loan. Find out why a signature loan is a better option than a payday loan for most borrowers.  

Credit Worthiness

The biggest difference between payday and signature loans involves credit scores. For most payday loans, there's no need to undergo a credit check to get money. However, this means you can't prove you're a reliable spender and therefore qualified to enjoy a lower interest rate. This means that going through a credit check for a signature loan is worth the extra effort. Even if you don't have the greatest credit, a relatively healthy history of borrowing will qualify you for a personal loan without anything to put up for collateral.

Interest Rates

The lower interest rates that accompany signature loans offer the biggest benefit for the average borrower. When borrowing $1,000, even a 1% decrease in the rate results in $10 saved per year. Considering that payday loan rates compound exponentially as the loan ages, you can save hundreds or even thousands of dollars in the long run by going with a signature loan with a lower rate. Of course, interest rates fluctuate regularly, so make sure to check actual offers from lenders before assuming you'll qualify for the lowest rates advertised.

Payment Timeframe

Payday loans are designed to only cover your expenses until your next paycheck, so most come with very short repayments terms of just a week or two. In contrast, you can negotiate for practically any timeframe of repayment with a signature loan since it's provided by a bank instead of a retail lender. Most unsecured personal loans are capped at five years for repayment, but even stretching out a small loan over a few months makes it much easier to repay.

Cosigning Options

In most cases, payday loans are limited to one borrower to minimize legal complications in case the lender needs to pursue repayment through the courts. It's far easier to find a signature loan offer where you can bring in a cosigner, such as a family member or business partner, to share the responsibility of the debt. If you have a spouse or a parent with very good credit, bringing them on as a cosigner is a great way to qualify for a lower interest rate without putting up any collateral.