What’s the Difference Between Payday and Installment Loans?
Sometimes we need a bridge to help us get to the next payday. The good news is that there are more options for quick financing than ever before. However, securing financing isn’t a one-size-fits-all type of endeavor. That’s why it’s important to do your homework when it comes to finding out what’s available. Two of the most common financing options that you’re going to come across are payday loans and installment loans. Here are some of the perks of using either of these two options when you need financing:
- Easy access
Which option is going to work best for your situation? That could depend on how much you need to borrow and how quickly you want to pay it back. It’s important to know that payday loans and installment loans are not interchangeable. Take a look at what both options have to offer and see which one the better choice for your financial plans is.
What Is a Payday Loan?
A payday loan is an option for quick cash that you’ve probably seen advertised on television or online. Payday loans are typically used by people who need a small amount of money that will be repaid on a short-term basis. Their amounts can range anywhere from $100 to $1,000. A loan like this is always paid out in one lump sum and paid back in one lump sum. That means that you’ll be on the hook for the entire amount that you’ve borrowed relatively soon.
Payday loans are often used by people with bad credit who need immediate cash. A loan like this could be beneficial if you need advanced funds for an expense that is already budgeted for. Since they have a quick repayment period, this loan option isn’t recommended for those who have not allotted the necessary funds to repay the loan as it is a short-term solution. Payday loans are typically easy to obtain if you have a source of income and some application processes take as little as 30 minutes. However, there are some things to be wary of when considering a payday loan. The average percentage rate (APR) that accompanies this type of loan is notoriously high. The actual rate that you pay will vary by state, and in some states payday loans aren’t even legal.
What Is an Installment Loan?
An installment loan, on the other hand, is a legal option to obtain money those times when you need an infusion of funds. This loan type is short-term and unsecured. The big thing that makes an installment loan different from a payday loan is the fact that you can make repayments over an extended amount of time using a series of fixed payments. These payment installments will help you to pay back your loan in chunks instead of being on the hook for the total lump sum all at once. That can ease some of the stress of having to pay back a loan.
Many people like the predictable payment schedule that accompanies an installment loan. You can typically time your repayments to be due at the same time you get paid. One other big difference between an installment loan and a payday loan is that installment loans are typically offered in much higher amounts. A loan can start as low as $150 and go up to thousands of dollars. That makes an installment loan a much better option if you need to cover an expense that is over $1,000. The fact that installment loans are not secured means that you don’t need to put up any collateral when borrowing money. That’s good news if you don’t like the idea of using your mortgage, car title, or some other valued possession as collateral. Obtaining an installment loan is typically a very quick and easy process. You will likely be able to obtain cash immediately or see funds in your account within days of being approved.
Choosing Between an Installment Loan and a Payday Loan
How can you know which option is the best one for you? A payday loan could be a good choice if you simply need a one-time loan to cover a small amount of money. However, you should be prepared to pay back the full amount on the due date. A payday loan is the more expensive option due to above-average interest rates and the urgency of the payback window, but they are also more common. Car, home, and education loans are all examples of installment loans. Their reliability and lower APR make them a preferred option by many borrowers. In addition, you will be able to borrow more and pay back what you’ve borrowed using a predictable payment schedule.