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Payday vs Installment Loans: Review
Unless you have some experience with various types of loans, you might need to brush up on the basic facts before applying for any type of loan.
Payday loans and installment loans are two of the most common types of loans available, but you need to know the difference in order to decide which one is going to be best for you.
Here is a quick summary of each loan, first of all.
A payday loan is a short-term loan which many people use as a quick solution to an emergency or other type of financial problem. These loans range in size from $100 to $1000 in most cases. Payday loans can be applied for online and are usually approved within a few minutes, providing you have submitted the correct information. In order to qualify for a payday loan, applicants must be at least 18 years of age, have a bank account and a regular source of income. Payday loans have gotten their name from the fact that the loan must be repaid in full by the next payday of the borrower.
An installment loan can be borrowed either for short-term problems or for slightly longer financial struggles. These loans are usually between $200 and $1000-$2000, although you will sometimes have the opportunity to borrow larger amounts of money. You will need to meet certain criteria in order to get an installment loan, including a minimum take-home amount from a job or other income source and a chequing bank account.
The main feature of installment loans is that the money is paid back to the lender in installments over a number of months, rather than in one lump sum payment.
Common factors of payday and installment loans
While these loans are different in certain aspects, there are also similarities between the two. One of the main similarities is that neither of them require a credit check. Applicants will be screened in exactly the same way whether their credit ratings are bad or good, so if you have been refused credit cards and bank loans in the past, you might still be able to get your hands on some quick cash.
Another thing which is common to both payday and installment loans is the fact that you can get the money very quickly. After you apply online, you will be told whether or not you have been approved for the loan. If you have been approved, your application will be passed on to the lenders, who will then be in touch with you. The money is usually in your bank account the next day, and in some cases, within the next few hours.
Differences between payday and installment loans
Although you can see some of the similarities between the loans, you can't get away from the fact that some things are quite different between the two types.
The main different is in the name. Payday loans must be repaid in full by your next payday, whereas installment loans can be paid over the course of several months in installments. This makes installment loans a much more flexible alternative to payday loans for many people, especially those looking to borrow larger amounts.
With an installment loan, a direct deposit will be set up with your bank account so that the installments can be made to the lender each month. This is not done with a payday loan, since the loan is repaid as one payment on your payday.
Deciding which type of loan to get
The type of loan you eventually choose to get will depend on your individual circumstances and preferences. Some people much prefer to have a short-term loan and pay it off quickly when they are next paid. However, other people don't like the idea of using most or all of their next pay check to pay off existing debts, and would much rather using the coming months to gradually pay off the loan which they have taken out.
If you have bad credit, you can apply for either of the two loans, and you have just as much chance of being accepted for each loan. You should never take out more than one loan at a time, since this can complicate your finances and give you further problems to deal with.
The best thing to do if you cannot decide which loan to get is to read up about the individual loans and find out which one is going to best suit your requirements. You might need to borrow more than a payday loan allows, and in this case, an installment loan would be the best option. You can always apply for more than one loan and then choose the one which suits best afterwards.