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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 big purchases and unforeseen circumstances, such as a funeral, medical emergency, or home repair.
What are the differences between these loans? In particular, we’ll look at payday loans versus installment loans in this article. Let’s start.
Payday Loans Versus Installment Loans
Installment loans are a broad category that includes mortgages, car 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 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 on your next payday (hence, the name). When applying for this loan, you may be required to write a postdated check or provide your bank account details. PaydayPact.com will see to it that you receive a reliable alternative lender to provide you with a cash advance in a timely manner.
The drawback to payday loans is they can be challenging to repay. However, lenders allow you to roll over 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 payday loans can be obtained is the most significant advantage. Unlike traditional lending products, you can apply online in minutes and have funds transferred to your bank account typically 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 lending. As a result, lenders frequently approve borrowers with poor credit histories and low incomes, despite not meeting the essential eligibility criteria of banks and other high-street institutions.
You can be approved even if you have bad credit.
As previously stated, you don’t need a perfect credit history to be approved for a payday loan. Even borrowers with bad credit can still apply and may even be approved.
It is an unsecured loan.
Following this, you don’t necessarily need collateral for a payday loan. They have high interest rates for this reason—to offset costs in case borrowers default.
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 usually referred to as “personal loans.”
As with any installment loan, you get a lump sum of money upfront. You will then make a fixed monthly payment for the duration of the loan. For example, a car loan could last three years, while a mortgage could last thirty years. Personal installment loans typically last for 12 months.
Below are some benefits of installment loans:
The Benefits of Installment Loans
They have high loan limits.
Installment loans allow you to borrow up to $50,000 or more if you meet all the lender’s requirements.
They can help you build your credit.
If you have a less-than-average credit score, you can get an installment loan to help you rebuild it, provided that you make timely payments. You can even get better rates if you have good credit.
The repayment is fixed.
Installment loans have a fixed repayment amount and schedule for their entire duration. Lenders can’t change your monthly payments unless you want a loan restructuring.
An early repayment is an option.
If you can afford to repay your loan early, you can do so with installment loans and incur no additional fees. However, consult with your lender before making early repayments.
Conclusion—Which One is Better?
If you are eligible for an installment loan, it may be preferable to a payday loan. Payday loans have higher interest rates, and because you can roll it over to the next payday, you could potentially keep putting off the payment and end up in a cycle of debt.
However, payday loans could be better if you have bad credit, need money urgently, or can pay the loan on time. In the end, it depends on your circumstance and financial capability.
An Alternative Option to Consider: Cash Advance Apps
These are like payday loans and are sometimes referred to as “paycheck advance apps,” but there are a few key differences. There are no physical storefronts, and there is no interest charged. Instead, they request a “tip.” They make small loans that are paid back with your next paycheck.
Author’s Bio:
Harrison has been a freelance financial reporter for the past 6 years. He knows the major trends in the financial world. Jones’s experience and useful tips help people manage their budgets wisely.