If you need money quickly, you can turn to loans. You can get a variety of loans: personal, payday, installment or same day loans. These loans can be used for large purchases and unforeseen circumstances, such as funerals, medical emergencies, or home repairs.
What are the differences between these loans? In particular, we will be looking at payday loans versus installment loans in this article. Let’s start.
Payday loans versus installment loans
Installment loans are a broad category that includes mortgages, auto loans, and other personal loans. They are usually longer and subject to credit checks. Payday loans are usually paid in a lump sum within two weeks or the next payday and have higher interest rates. To avoid the stigma associated with payday loans, the industry has adopted the term “short-term installment loan”.
What is a payday loan?
Payday loans are much smaller, usually under $1,000, and need to be paid off on your next payday (hence the name). When applying for the loan, you may need to write a post-dated check or provide your bank details.
The downside of payday loans is that they can be difficult to repay. However, lenders allow you to roll over the loan and pay the additional interest on the next payday. Typically, they will also include late fees.
You can read some of the benefits of payday loans below.
Benefits of Payday Loans
They are easily accessible.
For many borrowers, the ease with which payday loans can be obtained is the most important benefit. Unlike traditional loan products, you can apply online in minutes and have the funds transferred to your bank account usually the same day.
They are less stringent than other types of loans.
Payday loans appeal to many borrowers because the acceptance criteria are often less stringent than other types of loans. As a result, lenders frequently approve borrowers with poor credit histories and low incomes, even if they do not meet the essential eligibility criteria of banks and other top-tier institutions.
You can be approved even if you have bad credit.
As stated earlier, you don’t need a perfect credit history to be approved for a payday loan. Even borrowers with bad credit can still apply and may even be approved.
It is an unsecured loan.
Following this, you do not necessarily need collateral for a personal loan. They have high interest rates for this reason – to offset the costs if borrowers default.
Now let’s look at installment loans.
What is an installment loan?
An installment loan can include mortgages, car loans, boat loans, etc. Installment loans similar to payday loans are generally referred to as “personal loans”.
As with any installment loan, you benefit from a lump sum of money in the front. You will then make a fixed monthly payment for the duration of the loan. For example, a car loan can last for three years, while a mortgage loan can last for thirty years. Personal installment loans generally last 12 months.
Here are some advantages of installment loans:
The benefits of installment loans
They have high loan limits.
Installment loans allow you to borrow up to $50,000 or more if you meet all of the lender’s requirements.
They can help you build your credit.
If you have a below average credit score, you can get an installment loan to help you rebuild it, as long as you make timely payments. You can even get better rates if you have good credit.
The reimbursement is fixed.
Installment loans have a fixed amount and repayment schedule for their entire term. Lenders can’t change your monthly payment unless you want a loan restructuring.
Early repayment is an option.
If you can afford to pay off your loan early, you can do so with installment loans without incurring additional costs. However, consult your lender before making any prepayments.
Conclusion—Which is better?
If you qualify for an installment loan, it may be preferable to a payday loan. Payday loans have higher interest rates, and since you can defer them to the next payday, you could potentially continue to defer payment and find yourself in a cycle of debt.
However, payday loans might be more beneficial if you have bad credit, need money urgently, or can repay the loan on time. In the end, it depends on your situation and your financial capacity.
An alternative option to consider: cash advance applications
These look like payday loans and are sometimes called “payday advance apps”, but there are a few key differences. There is no physical storefront and no interest is charged. Instead, they ask for a “tip”. They make small loans that are paid off with your next paycheck.
Authors biography :
Harrison has been a freelance financial journalist for 6 years. He knows the major trends in the financial world. Jones’ experience and helpful tips help people manage their budgets wisely.