When your personal expenditures exceed your income, the quickest solution is to borrow the money. Fortunately, there are short-term lending options that make getting several hundred dollars in your bank account quick and easy. Two of the most commonly used short-term options are payday loans and installment loans. On the surface, the two options may seem identical, however, there are some differences you should be made aware of to make the most informed decision on which loan type is best for you.
Payday Loans
Payday loans are short-term loans for small amounts of cash. The loans are provided to the borrower with the understanding that the funds will be repaid on their next pay cycle (usually within 14 days). Applying is generally easy and can be done online. Eligible applicants will need to be at least 18 years old, have verifiable income, and a valid checking or savings account.
Installment Loans
Installment loans are alternative payday loans. Unlike payday loans that have to be repaid within 14 days, installment loans can be spread out over the course of several months or years depending on how much is borrowed and the agreed upon terms. Like payday loans, installment loans can be applied for online and only require proof of income and a checking or savings account. Since they’re geared towards those with low or no credit, your chances of approval are a lot higher.
What’s the Difference?
Short-term installment loans and payday loans may sound a lot alike, however, there are some key differences you’ll want to be aware of.
Loan Amounts – The amount that can be borrowed is different. While a payday loan is typically $100 – $500, depending on the type of installment loan, customers could borrow a thousand dollars or more.
Repayment Period – Since payday loans are as the name implies, to be paid back on your next payday, the ideal repayment term is 14 days. Since there was only a small amount borrowed, lenders expect it to be paid back faster. Failure to do so could result in much higher interest rates and extension fees added to the total.
Installment loans, on the other hand, provide borrowers with more time to repay. Since they’ve borrowed more money, the loan is broken up into several small payments over the course of a few months or years.
Extended Fees – When a borrower is unable to pay their payday loan on the agreed upon date, they are required to pay an extension fee. This fee can be as much as $30 per $100 borrowed and does not count towards the payment of the loan. This, in turn, wastes more money and prolongs the goal of paying off the loan altogether.
Installment loans do not have extension fees. Instead, the loan and interest rate are divided up into small payments over the course of several months. The fixed monthly amount goes towards paying down the balance.
Flexibility – Another significance in payday loans and installment loans is flexibility in repayment. Payday loan balances, fees, and interest must be repaid within 14 days to avoid higher fees and interest. Installment loan providers, however, give you an option of how long you’ll need to pay off your loan. You can choose to pay it off early to save on interest, or make timely, fixed monthly payments until the balance is paid in full.
Choose Carefully
There are a lot of differences between payday loans and installment loans. Whatever your financial problems might be you don’t want to make them worse by choosing in haste. Review your circumstances carefully and then choose a lending product that best matches those needs. Remember, the idea is to get out of a jam, not put yourself further into debt. Review payment terms, payment amounts, interest rates, fees, eligibility requirements, and more to discern if you’ve chosen the right loan for you.
There may come a time when your finances are in disarray and you need a lifesaver to help you out. Though short-term loans like payday loans and installment loans can be beneficial for getting cash fast, it is imperative that you make an informed decision on which loan option is better for you. As you can see, while payday loans might be okay for small needs like a higher than normal bill, installment loans can be best for more expensive things like a car repair or home improvement task that will take longer to pay off. Whichever you choose, be sure that you know what to do and how to be a responsible borrower to avoid going further into debt.
Follow Us!