The Real Difference Between Payday and Installment Loans, and Which Loan is Right for You
Are you looking for financing? If so, you may be wondering what the right type of loan is for you. Are you in need of a small loan or something larger? What kind of purchase are you looking to make with the loan? And what kind of financial situation are you in? All this will affect your decision.
If you’re on the lookout for immediate finance, you might be considering an installment loan or a payday loan – also referred to as a cash advance loan or a short-term loan. To help you decide which one is the better choice for what you need, we’ve broken down each loan type to help you understand the differences between the two.
These are small credit solutions of around $100 to $1,000 designed to be repaid in the short-term. These loans can be applied for by people with less-than-perfect credit history and repaid in one lump sum, usually on your next payday. The annual percentage rate (APR) for these loans is quite high, usually in the hundredth percentile, but the actual rate you are offered depends on the state you reside in. Payday loans are not legal in every state.
Payday loans are primarily for individuals who need cash fast and now. You might need a payday loan if you don’t have enough cash to pay everyday expenses like rent, food, and utilities; if your car breaks down and you’re faced with a huge repair bill; if a family member has a medical emergency; if your checking account is overdrawn; for unexpected travel needs; if there’s a death in the family; or if you’ve failed to get bank a loan, etc. When exploring the option to get a payday loan, ALWAYS do your research first and compare costs of other loans.
The Typical Borrower:
While every borrower differs, the flexible eligibility criteria attracts borrowers that:
- Have bad credit or no credit history
- Lower-income earners
- Have no bank accounts if they are applying in-branch or at check cashing stores
- Need small loans with a quick turnaround
Loan Amount & Terms:
- Loan terms and maximum amounts are regulated at a state level
- You can usually borrow between $50 and $1,000
- Terms are normally offered between 7 and 60 days
How Much Will It Cost:
- Payday loans are notoriously costly. Typical APRs reach into the hundredth percentile, but what you will actually pay depends on what state you live in. Remember that payday loans are lent over the short-term, so while APRs are a good representative cost of the loan, you will not pay back that full cost over a year.
- If you cannot pay off the loan within the terms provided, it could lead to refinancing or rolling over the remaining amount. Doing so can incur extra fees and charges.
Lenders Offering Payday Loans:
- Online lenders:
- Check-cashing stores
- Cash advance lenders
Payday Loans You Can Apply for Today:
Head over to OppLoans now to apply or call (800) 990-9130
These loans are for larger amounts and for longer terms than payday loans. Loan amounts range from $1,000 to $100,000 and terms can be from 6 to 60 months (5 years). The payments made to this type of loan are made in installments, hence the name. While installment loans have come to be associated with bad credit borrowers, they can be taken out by those with good or bad credit and are available from banks, standalone lenders or credit unions.
There are several types of installment loans that can be useful depending on your situation. For example, if you wish to buy a home or vehicle, you may not be able to pay the cost in full. However, if you get approved for an installment loan, you can complete the purchase and pay the loan back over time.
Other uses of installment loans include home improvements, medical bills and higher education. Here are four common types of installment loans:
- Auto loans
- Personal loans
- Student loans
The Typical Borrower:
As with payday loans, there is no “typical” borrower with an installment loan. Borrowers can:
- Have good credit or bad credit, with lenders catering to both
- Be looking to borrow a larger amount and pay off the loan over time
- Want to take out a secured or unsecured loan
Loan Amount & Terms:
- This varies greatly between lenders. You can borrow anywhere between $1,000 and $100,000 depending on the lender and your eligibility
- You pay off the loan in installments over a term of between 6 and 60 months (5 years)
How Much It Will Cost:
- Installment loans vary greatly in costs. How much you will pay depends on how good your credit score is, whether the loan is secured or unsecured, what lender you applied with, among other factors. Some lenders will let you get a rate estimate before you apply without it affecting your credit score.
Lenders Offering Intsallment Loans:
Intsallment Loans You Can Apply for Today:
Apply at Blue Trust Loans or call (888) 229-2697
Which loan is right for you?
There are lots of things to think about when trying to determine which loan type is right for you. Here are some things to look at:
- How much cash do you need and how long will you need it? If it’s a smaller amount or just for a quick, small expenditure you might consider a payday loan. Larger amounts are more difficult to pay back so you might opt for an installment loan.
- How is your credit rating? It really won’t matter if you want a payday loan, but it might if you want an installment loan.
- How will you make repayment? If you are borrowing a small amount and can pay it all back at once, payday loans may be perfect; but if it’s too much to pay back within a single pay period, installment loans with manageable payments might be the better option.
- How will it affect your credit score? If you fail to pay back either loan in a timely fashion, they can hurt your credit score. Paying off a payday loan will not necessarily help your score, but making your installments on time every time can help provide a positive influence on your credit score.
The type of loan you decide to take needs to be the one that specifically works for you. Take your time and carefully consider your decision based on your present financial situation.