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 a funeral, medical emergency, or home repairs.
What are the differences between these loans? In particular, we will look at payday loans versus installment loans in this article. Let us begin.
Payday Loans vs. Installment Loans
Installment loans are a broad category that includes mortgages, auto loans, and other personal loans. They are usually longer and are 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 less than $1,000, and are due on your next payday (hence the name). When applying for this loan, you may be required to write a postdated check or provide your bank account details.
The downside of payday loans is that they can be difficult to pay back. However, lenders allow you to renew the loan and pay the additional interest on your next payday. They will also usually include late payment 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 significant advantage. Unlike traditional loan products, you can apply online in minutes and have the funds transferred to your bank account, often the same day.
They are less strict 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, despite not meeting the essential eligibility criteria of banks and other major institutions.
You can be approved even if you have bad credit.
As stated above, 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.
After this, you don’t necessarily need collateral for a payday loan. They have high interest rates for this reason, to offset costs in the event of default by borrowers.
Now, let’s take a 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 often called “personal loans.”
As with any installment loan, you get a lump sum of money in the front. You will then make a fixed monthly payment for the life of the loan. For example, a car loan might last three years, while a mortgage might last thirty years. Personal installment loans usually last 12 months.
Here are some benefits 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 your payments on time. You can even get better rates if you have good credit.
The return is fixed.
Installment loans have a fixed repayment amount and schedule throughout their life. Lenders cannot change your monthly payments unless you want a loan restructuring.
An early refund is an option.
If you can pay off your loan early, you can do so with installment loans and no additional fees. However, check with your lender before making any prepayments.
Conclusion: which is better?
If you are eligible for an installment loan, it may be preferable to a payday loan. Payday loans have higher interest rates, and because you can roll it over to your next payday, you could keep putting off and end up in a cycle of debt.
However, payday loans might be better if you have bad credit, urgently need money, or can pay off the loan on time. In the end, it depends on your circumstance and financial capacity.
An Alternative Option to Consider: Cash Advance Apps
These are like payday loans and are sometimes called “paycheck advance applications,” but there are a few key differences. There are no physical storefronts and no interest is charged. Instead, they ask for a “tip.” They make small loans that are paid back with your next paycheck.
Harrison has been a freelance financial reporter for the past 6 years. He knows the main trends in the financial world. Jones’s experience and helpful advice help people manage their budgets wisely.