The Difference Between Payday and Installment Loans
When you need to borrow some money, it can be difficult to know which type of financial product is right for you. There are loads of different lending options available. We’re here to help you understand the difference between payday and installment loans, as well as some useful tips to help you decide which is best for you.
There are primary differences between payday and installment loans. But is one better than, or worse than the other?
Payday Loans vs Installment Loans
A lot of loans fall under the category of installment loans, as they are paid back in monthly installments. This is different from some other loans that might be paid back in one lump sum, such as a payday loan. There are some key differences between payday and installment loans. It is vital to understand how they work and the pros and cons of each.
What is a Payday Loan?
A payday loan is usually offered in small amounts and is paid back in a short-term time frame. The interest rate is usually very high, however, there is no need for collateral. The lender offers you the money you request and then you pay it back with your next paycheck.
Advantages of Payday Loans
- Offers a simple, quick way to get extra cash.
- Provides solution for short-term cash needs in between paychecks.
- Allows individuals to promptly take care of emergency expenses.
- Preferable if individuals can pay back the loan right away.
What is an Installment Loan?
An installment loan is a short-term, unsecured loan extended to borrowers. The interest rate is relatively high. The repayment is carried out over a predetermined amount of time. As well as this, the loan is paid back in a series of payments, or installments that go toward the loan.
Advantages of Installment Loans
- Obtain more money than a payday loan.
- Installment loans usually have longer repayment terms since you’re taking out a larger amount of money.
- There is a fixed interest rate when you take out an installment loan. You will know how much to pay out of each paycheck.
Which loan is right for you?
There are a lot of things to think about when trying to determine which loan type is right for you. The type of loan you decide you need has to be what works for you. Take your time and determine which is the best decision for you and your present financial situation.