If you’re looking for a loan to quickly get cash, you will see both installment and payday loans come up in the majority of your searches. Both loans work well to help you when you’ve come upon a financial emergency, but they aren’t equally useful.
Keep reading this article and we’ll help you settle the installment loan vs. payday loan debate today.
Installment Loan Vs. Payday Loan
Installment and payday loans both fall under the category of personal loans. To be approved for one of these loans, you have to provide information regarding your income to prove that you can pay the loan in full.
Neither loan is revolving like a credit card. Instead, they are both given as lump sum payments. But that’s where the similarities end.
Here are the details that make the two personal loans different.
Installment Loan Specifications
When you apply for an installment loan, much of your financial history will be reviewed. This is so that the lender can determine if you’re a high-risk borrower who will have a hard time repaying the balance.
The lender will want to know your:
In some cases, a lender may also ask for collateral to be used against the loan. Collateral will go into the lender’s possession if you can’t repay the loan.
Installment Loan Types
Installment loan come in many shapes and sizes. They are student loans, mortgages, auto loans, and home equity loans.
Once an installment loan is paid off, your account will be closed.
Where to Apply
You can find lenders who offer installment loans online. These are businesses without a physical location or office you can walk into.
If you choose to go with an online lender, do your due diligence. Always read the fine print and ask questions if something isn’t registering right with you.
A misunderstanding can end up costing you additional money in fees. Something you should definitely know up front is whether there are penalties for late or missed payments and what they are.
You can also contact your local bank or credit union to apply for an installment loan. This is the option we recommend you take first.
If you ask a bank or credit union you’ve been doing business with for a while, you can increase your chances of approval and possibly get a lower interest rate.
Installment Loan Terms
The term of your installment loan can be several years depending on the type you are using. For instance, mortgages can work in 15, 30, or 40-year terms.
But if your installment loan is for purchasing a car, the term won’t be nearly as long. On average, a car loan term is between 5 and 7 years.
During the term of your installment loan, you will have to make monthly payments that also include interest. This is similar to credit card payments. An installment loan just can’t be used again.
Payday Loan Specifications
Payday loans are best for borrowers who either don’t have any credit or have very poor credit. When you apply for the loan, you won’t be required to submit nearly as much paperwork as you would with an installment loan.
Lenders will ask for a valid picture ID that shows you are at least 18 years old. They will also want proof of income and access to an open and functioning checking account.
As a result, payday loans are much easier to obtain, but they come with a risk and carry very high interest rates.
Types of Payday Loans
The most popular types of payday loans are one-hour loans and cash advances.
One hour payday loans are also known as instant payday loans. They are usually provided by online lenders. When you apply and are approved, the money will be transferred into your bank account in an hour or less.
The fees for cash advances tend to add up very quickly. Usually, if you find a cash advance with a low interest rate, the processing fee is high. And if the processing fee is low, the interest rate is high.
These are usually due on your very next payday and can result in you having a bill bigger than your paycheck.
Where to Apply
Payday loans are available via online lenders and some large banks. As with installment loans, you should be careful when applying with an online lender.
Unfortunately, many online lending agencies use hidden fees to make their money.
Types of Payday Loan Lenders
It’s never smart to do business with the first lender you are approved by without doing research first. But before you even begin applying for payday loans, you need to know about the types of lenders you can choose from.
Here are the most common:
They will process your application and fund your loan without a third party.
Credit Access Business
These are state-registered agencies that work as a third party to help you make loan arrangments with a lender.
State Regulated Lenders
These lenders are regulated by the state you live in. This protects you from paying fees and interest rates higher than the law allows.
Payday Loan Terms
Payday loans are short term. The term agreement is typically based on your pay schedule be it weekly, bi-weekly, or monthly.
At the time of your due date, the amount of the entire loan will be due. If you aren’t able to make the full payment by that date, you can see some huge interest and late fees applied to the balance.
Knowing the details regarding an installment loan vs. payday loan will help you make the options that best suit your lifestyle and financial situation. We hope that learning about installment loans vs payday loans helped you.
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