For various different reasons, there comes a point in almost everyone's lives when they could use a little extra cash. A loan can be a great way to tide you over until money comes in or help out when times are tough.
But not all loans are created equal. In fact, some loans can have big differences in key areas that are essential for borrowers to be aware of. This post will examine the difference between payday loan and installment loan: which is better for you?
Quick Definitions
If you've never taken a loan before, you might not be well acquainted with the different types. Below are some quick and simple explanations of both of the above types of loans, before we dive deeper into the finer details of the two.
A payday loan is so-called because it is generally the case that the loan must be paid off in a lump sum not too far in the future from when it was borrowed. For example on the borrower's next payday.
An installment loan, on the other hand, is a loan that is paid back by the borrower in a series of installments on a pre-agreed schedule. The time frame is much longer, in some cases up to five years.
Payday Loans: What To Know
One of the advantages of a payday loan is that it is generally possible to obtain one with a bad credit rating. Even, in some cases, with no credit history whatsoever. This makes it an easy and quick way to access cash, which is convenient for many people.
However, this convenience isn't without its trade-offs. The limit of a payday loan is often low, ranging from $50 to $1000 depending on the state and provider. As well as this, the annual percentage rate (or APR) is usually high compared to other types of loans, meaning you'll usually end up paying back a lot more money than you borrowed.
The length of a payday loan will vary depending on who your provider is. Time frames usually range between one week and two months.
Installment Loans: The Nitty Gritty
With this type of loan, good credit is sometimes a requirement, however, it is possible to find providers of installment loans that do not perform credit checks, as well.
Installment loans can often come in much larger amounts, with the limit generally ranging between $1000 and $100,000 depending on the lender. The APR for most installment loans is low compared to payday loans, meaning you'll likely end up paying back something closer to the amount you actually borrowed.
A Marked Difference Between Payday Loan And Installment Loan
Borrowing money is a big responsibility, and before you choose a way to do so, it's important to properly weigh up the pros and cons of each.
As you can probably see, the difference between payday loan and installment loan is quite a large one. Both have their own advantages and disadvantages.
What might be suited to one borrower, may not work for the next. It's important to choose the one that works best for you in your current financial situation.
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