Payday loans or installment loans: which is better? and other news

Published by
Peter Kavinsky

If you urgently need money, you can turn to loans. You can get various loans: personal, payday, installment or same day loans. These loans can be used for major purchases and emergency situations such as funerals, medical emergencies or home renovations.

How are these loans different? In particular, in this article we will look at payday loans and installment loans. Let’s start.

Payday loans vs installment loans

Installment loans are a broad category that includes mortgages, car loans, and other personal loans. They are usually longer and subject to a credit check. Payday loans are usually paid in a lump sum within two weeks or the next payday and carry 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, typically less than $1,000, and must be repaid the next payday (hence the name). When applying for this loan, you may be required to issue a backdated check or provide your bank account details.

The disadvantage of payday loans is that they can be difficult to repay. However, lenders allow you to roll over the loan and pay extra interest on the next payday. They usually also include late fees.

You can read some of the benefits of payday loans below.

Benefits of payday loans

They are readily available.

For many borrowers, the most significant benefit is the ease of getting a payday loan. Unlike traditional loan products, you can apply online in minutes and the funds will be transferred to your bank account, usually on 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 often approve borrowers with bad credit and low incomes, despite the fact that they do not meet the basic eligibility criteria of banks and other reputable institutions.

You can be approved even if you have bad credit.

As stated earlier, you don’t need a perfect credit history to get approved for a payday loan. Even borrowers with bad credit can apply and may even be approved.

This is an unsecured loan.

After that, you don’t necessarily need collateral for a payday loan. For this reason, they have high interest rates – to offset the costs in the event of default by borrowers.

Now let’s look at installment loans.

What is an installment loan?

An installment loan can include mortgages, car loans, boat loans, and so on. Installment loans, similar to payday loans, are commonly referred to as “personal loans”.

As with any installment loan, you get lump sum of money in advance. You will then make a fixed monthly payment for the life of the loan. For example, a car loan can last three years, while a mortgage can last thirty years. Private installment loans usually last 12 months.

Following are some of the benefits of installment loans:

Benefits of installment loans

They have high credit limits.

Installment loans allow you to borrow up to $50,000 or more if you meet all the requirements of the lender.

They can help you build your credit.

If your credit score is below average, you can get an installment loan to help you rebuild it, as long as you keep your payments on time. You can even get higher rates if you have good credit.

The payout is fixed.

Installment loans have a fixed repayment amount and a repayment schedule for the entire duration of the loan. Lenders cannot change your monthly payments unless you want to restructure your loan.

Early payment possible.

If you can afford to pay off your loan early, you can do so with installment loans and no additional fees. However, check with your lender before making an early repayment.

Conclusion – which one 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 roll them over to the next payday, you could potentially keep deferring payment and end up in a debt cycle.

However, payday loans may be better if you have bad credit, need money urgently, or can repay the loan on time. In the end, it depends on your circumstances and financial capabilities.

Alternative to Consider: Cash Advance Applications

They are similar to payday loans and are sometimes referred to as payday apps, but there are a few key differences. There are no physical storefronts, no interest is charged. Instead, they ask for a “tip”. They give out small loans that are paid back with your next paycheck.

Author biography:

Harrison has been a freelance financial reporter for the past 6 years. He knows the main trends in the financial world. Jones’ experience and helpful advice helps people manage their budget wisely.

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Peter Kavinsky

Peter Kavinsky is the Executive Editor at cablefreetv.org

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