What’s the Difference Between a Payday Loan and an Installment Loan?

Loans have different sizes and shapes, and before there is a self-need for cash, it’s imperative for you to have knowledge of the major differences among them.

Are you wondering what separates an installment loan from a payday loan? 

You should not stress yourself, as this article is for you.

Payday Loans vs. Installment Loans

People often think payday loans are better as they are easy to obtain, even if you don’t have a good credit score or a history of ongoing employment. On the other hand, an installment loan is given based on your circumstances as it lends you a whopping amount of money at soaring-high interest rates. 

So, are you willing to know which of these loans is suitable for you? 

To help you decide which to choose between a payday loan and an installment loan, this article will perform a nitty-gritty differentiation of all the facts and conclude which is best for you. Let’s get started.

Payday Loans: Overview

In the case of this short-term loan, the borrower gives a personal check to that authorized lender. This check is the sum of the amounts to be borrowed along with the charges. The total is mainly levied as a percentage of the total face value, which is payable on the next paycheck date.

A payday loan is a top-notch option when your credit score is poor but there is a need to raise money urgently. Furthermore, unlike conventional loans, you may obtain a loan for bad credit very fast, for example, in 24 hours.

Though this loan doesn’t require checking the borrower’s credit history, it’s important to remember that organizations and lenders may have diverse terms and conditions. Some might have a hassle-free application process, whereas others might offer higher charges. 

Installment Loans: Overview

An installment loan can consist of all sorts of loans, for example, car loans, mortgages, bank loans, and more. However, the types of installment loans that are equivalent to payday loans are mainly classified as personal loans. 

You will get a lump sum of cash in advance with the installment loans. After that, you will make a fixed monthly payment over the loan duration. It might be 30 years to compensate for the money for a mortgage loan and 3 years for a car loan. However, repaying a personal installment loan is mainly done in 12 months. 

Payday Loans: Pros and Cons

Pro #1: They’re hassle-free to access.

Accessibility is the biggest advantage of payday loans. Various cash advance lenders promise access to money within 24 hours and a quick lending decision. On the other hand, some are given 7 days a week, 24 hours a day, and have online applications. 

Pro #2: It’s an unsecured loan.

Payday loans aren’t guaranteed by personal property like a car title loan or a traditional loan. It implies that the lender can’t confiscate your property if you don’t pay. Payday lenders often have the fastest access to your bank account per the loan’s terms and conditions. They can take other measures, for example, taking you to court over exceptional balances or sending your debt to collections.

Con #1: It’s hassle-free to get trapped in a debt cycle.

Every time you roll over a loan, the payday lenders will levy extra fees, raising your out-of-pocket charges of borrowing the cash. Hence, extending the loan can significantly raise the time it takes to compensate the loan, such as adding months or years to the original two-week terms.

Installment Loans: Pros and Cons

Pro #1: Larger loan amounts

Installment loans give borrowers quick access to more secured funds. You can borrow anything up to $5,000. However, the loan amount varies from one lender to another.

Pro #2: Predictable reimbursement terms

When you claim money from an installment loan, you know when your payments are due and when they will be over. Such predictability aids in removing cash flow indecisiveness you might face with payment terms that aren’t as strictly set. 

Con #1: Use of fund limitations

It’s not the case, but various installment loans have limitations on what you can use your budget for.  

Conclusion

If you’re eligible for a personal installment loan, it’s recommended to choose it over a payday loan. However, that’s not always the case because sometimes your credit score and credentials do not qualify for installment loans. Or, you might need the money with urgency. Payday loans are the saviors in this scenario.

To conclude, it’s up to you which one suits your needs. You will be funded quickly as soon as your application is approved.