(ThyBlackMan.com) There are several things you should know when comparing an installment loan vs payday loan. Check out our guide here to learn more.
Are you trying to make a big purchase but need a loan to secure the funds? You’re not alone!
Did you know that more than 16 million people in the US have personal loans? But it can be tricky to know exactly which loan type is right for you.
Keep reading our guide to learn everything you need to know when comparing an installment loan vs payday loan!
What is a Payday Loan and What Are the Advantages?
A payday loan is a personal loan that can be given to a person from a loan agency or online payday loans. These loans are secured by your next paycheck.
The lender is giving you a payday loan, requesting that you give it back with the next paycheck you receive. You could end up paying more, as this will also include interest and fees.
These loans are very easy to get for any individual with a regular job and have a quick process for receiving the money. Especially if you don’t have another source for receiving the money you need or the option of getting another type of loan- a payday loan can be very useful.
These are also convenient since loan agencies are popular in most cities, and are available online. This means you could receive the funds in minutes, either in person or transferred online to your bank account.
What Are the Disadvantages to a Payday Loan?
It’s important to understand the disadvantages of taking out a payday loan before you make your decision, including the interest rates.
This loan can be an expensive option since payday loans have very high-interest rates. However, the convenience of being able to get the money the day you need it might make the interest rate less of an issue for you.
Make sure you’re weeding out the scams and illegitimate payday lenders. Do your research so you can guarantee you have a qualified lender before applying for the loan.
Lastly, it’s important to do a lot of financial planning before accepting a payday loan. People can often get behind and accumulate debt by using the next paycheck you receive to pay back the loan. This could get you behind on other payments.
Another loan type that could be right for you is an installment loan.
What Are the Basics and Advantages of Installment Loans?
An installment loan is an unsecured loan that is short term with typically high-interest rates. This loan differs from a payday loan since the repayment period is carried out over a specific period of time, which is predetermined for a series of payments.
Other types of loans, like car loans or home mortgages, are considered installment loans since the loan is paid back over time. These unsecured installment loans are used when there’s no collateral. So the loan isn’t secured with a car or home.
These loans are also borrowed in a similar way to a paycheck loan and can also be found online by loan agents. The loan payments are predictable since there’s a fixed interest rate.
You’ll also know the rate to which you’ll be expected to pay back the loan and how much you will need to spend from each paycheck.
These are typically fast loans that are relatively easy to obtain and can get you the cash you need in a few days.
What Are the Downsides to Taking Out an Installment Loan?
The main disadvantage of an installment loan, similar to a payday loan is that it has high-interest rates. Since you’re making the payments over time, you could end up paying a lot of money.
You are also penalized if you miss payments, so it’s possible you could end up paying more over time if you fail to meet the deadlines.
Also, you might need to use personal property as loan securement. This is so that the loan agency has security in case you fail to pay.
What is the Difference Between Installment Loans vs Payday Loans?
The main difference between these two loan types is the manner in which you pay the loan back. Installment loans will have you paying in regular payment schedules, and payday loans expect a quick turnaround with the next paycheck you receive.
Payday loans are usually given with smaller sums, in the range of $100 to $1500. But installment loans can be given in thousands of dollars.
Also, the repayment schedule for a payday loan might be as short as 30 days, but you can pay back installment loans over a period of many months.
For both types of loans, a credit check might be used, but most loan agencies typically don’t require good credit scores. In general, both of these loan types are considered high-cost loans and typically given to those who have few alternatives. People with poor credit scores or lower incomes might opt for either of these loans.
Understanding Personal Loan Types: Installment loan vs Payday loan
Understanding the difference between installment loan vs payday loan is important when considering borrowing.
Do you need a small sum of money now to pay back soon? Or will you need a larger sum, and possibly gather more interest, but able to pay back over time? Take the time to think about your financial situation and which loan better suits your needs.
Keep reading more from our blog for additional money and business tips!
Staff Writer; Steve Jones