With many financial options open to people in financial need, it can be difficult to determine which one is better for you in the short term and long term. Two options available to people are payday loans as well as installment loans. But, what are the key differences between the two?
Installment Loan
An installment loan (which can be short term or long term) combines the principal loan amount with an interest rate. Once that total is calculated, an equal payment breakdown will be provided over a specific period of time. Most payday installment loans are paid monthly. Long term installment loans can take up to several years to pay back. Installment loans will most likely require some form of collateral or a co-signer.
The interest rate that you are charged is typically based on your credit score. The better your score, the lower the interest rate will be. The amount of money that you borrow along with the terms of the loan will be a determining factor in the monthly payments.
Some lenders may offer early payoff incentives as well. Paying extra each month will also begin to lower the amount of money you need to pay on your interest. This is always a positive if you can get ahead of your finances a bit.
Payday Loan
Payday loans are intended for one-time emergencies that are not overly expensive. This could result from a change in a utility bill that you can't cover or as a cash advance to pay for something coming up. You would not consider this type of loan if you were looking for help covering your monthly bills
When dealing with a payday installment loan, many times these loans are expected to be paid in a short amount of time, typically 30 days. This type of loan is usually a small-dollar amount and unsecured because there is no need to put up any form of collateral. This type of loan is also meant for personal reasons and not business.
People have an easier time accessing payday loans because lenders don't put as much emphasis on credit scores. Lenders will be looking to make sure that you have an active bank account, regular source of income, and be of legal age.
Conclusion
The great thing about both of these types of loans is that your credit history won't really stop you from being able to borrow money. It is wise to keep in mind that you should never take out a loan unless you absolutely need to take one out. Don't add expenses to your monthly bills if you do not need to.
When you cannot afford something that needs to be paid for, that is when taking out a loan should be considered. If it is not a huge financial burden, you would consider a payday loan. But, if the financial situation is really problematic and will require more money and more time to pay back, you would consider an installment loan.
Just always be sure to read the fine print and do your homework for the right lender ahead of time. You never want to be in more of a financial hurdle than when you started.