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Difference Between Payday Loan and Installment Loan
Personal loans such as payday loan or installment loan can be used to make ends meet. What is the difference between payday loans and installment loans? Which among these options is better?
Many Americans aren’t able to pay for unexpected expenses. 58% of Americans have less than $1000 in savings. Add in unexpected life events such as a hospital visit, car accident, or appliance breaking, and Americans will find themselves in a cash crunch.
It can be difficult to make ends meet when you don’t have much savings or life throws curveballs at you. These are just a few cases where installment loans can come in handy.
Installment Loans vs. Payday Loans
Installment loans can be used to finance mortgages, car loans, or other personal loans. They are generally longer-term and require credit checks. Although payday loans can be considered installment loans, they have a shorter repayment term, higher interest rates, and require no credit checks. Payday loans are now known as “short term installment loans” to avoid stigmatizing them.
An installment loan can be used for any type of expense, including mortgages, car loans, and boat loans. However, the types of installment loans most similar to payday loans are often called ‘personal loans’.
You get a lump sum upfront, just like any installment loan. You then pay a fixed monthly amount over the term of the loan. For a car loan, it could be three years or thirty years. For a mortgage, it might be 30 years. The average personal installment loan lasts 12 months.
A personal loan for personal use will require credit checks and a lengthy application process. Personal installment loans have a much lower interest rate than payday loans. All of this information is about personal installment loans and not “short term loans”, which is a euphemism to refer to “payday loans”.
Payday loans, which are usually less than $1000, are smaller loans that are due on the next payday. You will often need to write a post-dated cheque or provide access to your bank account for the lender to withdraw funds on your next payday.
Payday loans can be problematic if you are unable to repay them. Lenders may allow you to roll over your loan and pay it off the next payday with more interest. They will usually add late fees. Problem? The average interest rate is around 400%. Some penalties and fees can also be associated with loans. They are therefore among the most expensive borrowing options we have today.
The problem with payday loans is that the interest rate can sum up very quickly. They are however an attractive option for people who have poor credit and require instant cash.
Payday Loan Relief That Works
Which is better: Installment loan or payday loan?
It’s simple: a payday loan is not better than anything.
A personal installment loan is better than a payday loan if you are eligible. Payday loans can lead to financial ruin, including lawsuits, collections calls, and possibly bankruptcy. You might save your money.
Don’t be fooled by the term “short term installment loans”. It is still a payday loan.
Avoid tribal loans if you decide to get a payday loan. Also, make sure you have the funds you need to pay it back. Don’t get another payday loan. It is not worth it.