Differences Between Payday and Installment Loans
When it comes to your finances, it's important that you always make the right choices. Although it isn't always possible to know what the best option is, you can always research different options and try to understand as much as possible about each one.
When borrowing money from a bank or other lender, there is not just one sole option. In fact, there are several different options which will be available to you. Two of the most common types of loans are payday loans and installment loans.
A payday loan is a small loan which is normally used to help a person through a short-term financial crisis. This could be an emergency with your vehicle, an expected health bill or maybe even your child's party or a friend's wedding. Whatever the reason for needing some cash, a payday loan is the perfect way to get it quickly and without any fuss.
By contrast, an installment loan is normally a larger loan, which is borrowed and then paid off over a period of time. The borrower pays back the full loan in installments each month, which is where the name of this loan comes from.
What are the main differences between the two types of loan?
One of the main differences between these loans is that you must pay back the payday loan on your next payday, whereas the installment loan is paid back over a much longer time period. Payday loans are only intended to be a short-term solution, which is why most of them are only borrowed for a month or less.
Another difference is that installment loans provide you with more time to pay back the loan, but considering that most of them are larger, many people need the extra time in order to raise enough money to make the repayments. People often opt for installment loans because they believe it will be less stressful and they won't have to worry about using their next pay check to repay the cash which was borrowed.
A further difference between payday and installment loans is that payday loans are generally not secured. This means that you don't need any collateral or a guarantor in order to borrow the money. However, since installment loans are larger, you will usually need to use a property or vehicle as collateral for the loan.
Are there any things which are the same?
Although they have their differences, there are actually several things which these two loans have in common.
The most important is that the process of requesting a loan is very simple. Both types offer a simple online request form, which you can fill out from the comfort of your home.
What do I need to have in order to qualify for a loan?
The criteria for both loans is very similar too. You must be at least 18 years of age in order to get any type of loan, as lenders are legally not allowed to lend money to those who are underage. You will also need to have a bank account into which the money can be paid. This is the only method by which you can receive the money, so if you don't already have a suitable bank account, you will need to open one.
Finally, you need to prove to the lender that you have a stable source of income. This is necessary so that you can make the repayments. Remember that failing to repay the money you owe can damage your credit score, and can make things even more difficult for you in the future. Missed payments will also result in fees and charges, meaning you'll have even more money to pay back overall.
Which loan should I choose?
Once you understand the differences between the two loans, you can make an educated decision about which one is really right for you. If you need to borrow more than around $1,000, an installment loan is probably the best choice for you. However, if you only require a small amount of money, payday loans can be quicker, easier and better all round.
Installment loans can also offer more flexibility, since you have more time to repay the loan. However, with such a small amount in the form of a payday loan, many borrowers are able to easily repay the cash on their next payday.