When borrowing money for a financial need, you can consider several loan options such as a payday loan or an installment loan. Learning the difference between these types of loans will help you determine which one is best suited for your situation.
Here are some differences between a payday loan and an installment loan:
|Payday Loans||Installment Loans|
|Most payday loans are expected to be repaid within a few weeks||Terms for repayment that can be spread out over many years|
|Meant to cover small fast cash loan requirements $500 to $1000||Several hundred dollars to hundreds of thousands of dollars|
|Don’t require credit checks||Mandatory credit check|
|Approved quickly without much hassle||Outstanding debts, income, and credit history affect the loan approval process|
What Is an Installment Loan?
In installment loans, you do not have to repay the money by a specific deadline. Conventional bank loans usually offer interest rates that are inversely related to the duration of the loan. Provided you have a good credit score, it’s possible to get the lowest possible interest rates through regular banks.
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When to Use Installment Loans
Installment loans are used for specific purposes such as student loans, auto loans, personal loans, and mortgages. Installment loans are of several types – secured or unsecured installment loans, fixed or variable-rate installment loans.
Related Article: 5 Situations When You Shouldn’t Apply for Payday Loans Online
What Is a Payday Loan?
Payday loans are convenient ways to pay for items between paychecks. They get their name from the fact that you are paid by an employer and you can pay back the loan on your next payday. To qualify for this loan, all you need is proof of a regular job.
To encourage quick repayment, the interest rate can jump enormously in a short time, depending on the terms. Some lenders take a postdated check while others withdraw funds electronically from a bank account on a certain date.
When to Use Payday Loans
Sometimes payday loans are a last resort for people with bad credit. They can be very helpful in resolving financial problems quickly. They can help pay for medical bills and unexpected car repairs. These loans can also be valuable solutions for students paying for books or for money used to start a small business.
Payday loans are ideal for emergencies and can also be used for vacations. However, these loans should only be used by responsible borrowers who know they can repay the loan quickly. They should never be used as a substitution for income or as a reason to quit a job.
Payday loans are one of the best ways to get quick money in your financial emergency.