If you need money quickly, you can turn to loans. You can get a variety of loans: personal, payday, installment or same-day loans. These loans can be used for large purchases and unforeseen circumstances, such as a funeral, medical emergency, or home repairs.
What are the differences between these loans? In particular, in this article we will look at paycheck loans versus installment loans. Let’s begin.
Payday Loans vs Installment Loans
Installment loans are a broad category that includes mortgages, auto loans, and other personal loans. They are typically longer and subject to credit checks. Payday loans are usually paid in a lump sum within two weeks or the next payday and have higher interest rates. To avoid the stigma associated with early paycheck 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 on the next payday (hence the name). When applying for this loan, you may need to write a postdated check or provide your bank account details.
The disadvantage of payday loans is that they can be difficult to repay. However, the lenders allow you to renew the loan and pay the additional interest on the next payday. Typically, they will also include late fees.
You can read some of the benefits of payday loans below.
Benefits of Payday Loans
They are easily accessible.
For many borrowers, the ease with which paycheck loans can be obtained is the most significant benefit. Unlike traditional lending products, you can apply online in minutes and transfer funds to your bank account typically the same day.
They are less stringent than other types of loans.
Payday loans attract many borrowers because the acceptance criteria are often less stringent than other loan types. As a result, lenders often approve of borrowers with poor credit history and low incomes, despite not meeting the essential eligibility criteria of banks and other top-tier institutions.
You can get approved even if you have bad credit.
As stated earlier, perfect credit history is not required to be approved for a paycheck loan. Even borrowers with bad debt can still apply and can even be approved.
It is an unsecured loan.
Following this, you don’t need to need collateral for an advance paycheck loan. They have high interest rates for this reason, to offset the costs in case the borrowers default.
Now, let’s take a look at installment loans.
What is an installment loan?
An installment loan can include mortgages, auto loans, boat loans, and so on. Installment loans similar to paycheck loans are generally referred to as “personal loans”.
As with any installment loan, you get a lump sum of money in advance. You will then make a fixed monthly payment for the entire duration of the loan. For example, a car loan could last three years, while a mortgage could last thirty years. Installment personal loans typically last 12 months.
Here are some benefits of installment loans:
The advantages of installment loans
They have high loan limits.
Installment loans allow you to borrow up to $ 50,000 or more if you meet all of the lender’s requirements.
They can help you build your credit.
If you have a below average credit score, you can get an installment loan to help you rebuild it, as long as you make timely payments. You can also get better rates if you have good credit.
The refund is fixed.
Installment loans have a fixed repayment amount and a maturity over their entire term. Lenders cannot change monthly payments unless a loan restructuring is desired.
An early repayment is an option.
If you can afford to repay your loan early, you can do it with installment loans and at no additional cost. However, consult your lender before making prepayments.
Conclusion: which is better?
If you are eligible for an installment loan, it may be preferable to an advance paycheck. Paycheck loans have higher interest rates, and because you can carry them over to the next payday, you could potentially continue to postpone payment and end up in a cycle of debt.
However, paycheck loans might be better if you have bad credit, need money urgently, or can pay off the loan on time. Ultimately, it depends on your circumstances and your financial capabilities.
An alternative option to consider: cash advance app
These are like payday loans and are sometimes referred to as “paycheck advance apps”, but there are some key differences. There are no physical showcases and no interest is charged. Instead, they ask for a “tip”. They make small loans that are repaid with your next paycheck.
Biography of the author:
Harrison has been a freelance financial journalist for the past 6 years. He knows the main trends in the financial world. Jones’s experience and helpful tips help people manage their budgets wisely.