Many people experience temporary monetary problems these days. If you are also searching for the best lending solution to cover the unexpected costs, make sure you understand the peculiarities between a payday and installment loan as they certainly have differences. Weigh the pros and cons of each lending option to select the one that works best in your current financial situation and take the most suitable loan.
Is a Payday Loan an Installment Loan?
Some potential borrowers feel overwhelmed by the number of lending solutions available these days. However, there is a difference between payday loans and installment loans.
Generally speaking, best online payday loans are given for a short period of time and should be paid off in full until the next payday. That’s why they are called payday loans.
Consumers usually opt for this lending solution when they urgently need a small sum of cash until the paycheck. Why are payday loans popular? Simply because so many people in many countries try to make ends meet or experience temporary financial issues.
On the other hand, an installment loan is the sum of money given for a short or longer period that should be repaid in small monthly installments over a certain time period. Such installment loans may be unsecured or secured and require collateral.
Experts claim that installment loans are typically cheaper as they come with lower interest rates. Also, it’s more comfortable to repay the debt gradually in smaller equal parts on a monthly basis.
Are There Similarities?
Despite the above-mentioned differences between these two lending options, they have certain similarities as well. For instance, both payday and installment loans aren’t suitable for improving the credit score of the borrower. They won’t help to repair or build it up.
More than that, if the consumer fails to pay the loan off in time and in full, both of these solutions may even hurt the credit history of the borrower. Thus, it pays to be responsible for the debt and borrow only the amount you actually need to cover the urgent expenses.
Compare Features of Payday and Installment Loans
|Features||Payday Loans||Installment Loans|
|Amount of Cash||$100-$1,000||$1,000-$10,000|
|Repayment Term||Until the next payday||From 3 to 60 months|
|Credit Score||Good, bad or no credit history||Good or bad credit score|
|Places to Obtain||Online lenders||Banks, credit unions, online lenders|
|Aim||Short-term extra funds||Longer-term extra funds|
|Demands||Lower-income borrowers may apply||Necessary to have a steady income source|
Which Loan Is Better?
As you can see, there are certain differences between these two lending solutions. Depending on your current financial situation and urgent needs you may opt for a certain solution. Nobody can say which loan is better as it all depends on personal needs and preferences of each particular borrower.
If you need a smaller amount to make ends meet until the next paycheck, it’s better to select a payday loan.
Taking a loan, be sure you will be able to repay it. According to the statistic, nearly 80% of payday loans are renewed by another loan. And 15% of borrowers take at least 10 or more loans to cover previous ones.
If you need a bigger amount and want a more relaxed and convenient repayment schedule, opt for an installment loan.
Make sure you check all the details of each loan and understand its terms and conditions before you sign any agreement. Every lending institution or finance-related service provider has its own demands and requirements in order to get qualified for a loan.
Don’t hesitate to contact customer support or the creditor itself to eliminate any concerns or questions. Take your time and shop around until you find the best lender with the most affordable rates.