There are many types of loans and it can be difficult to know what is the perfect choice for you. Whether you choose a payday loan online or an installment loan for example, will depend on various factors and preferences as well as your specific financial emergency and circumstances. Before you consider taking out any kind of loan it is important that you understand the different types of loan that might be available to you. You may for example be looking for a no credit check loan, when a payday loan is a better option.
In this article we will consider whether payday loans or installment loans may be best for you.
What Is A Payday Loan?
A payday loan is a short-term loan designed to tide you over from one paycheck to the next.
Generally, a payday loan will be borrowed over a short period, either a month or a couple of months. These loans will typically enable borrowers to get a smaller loan of $400 or in some cases you may even be able to borrow $1000 or more. A payday loan is characterized by how easy and quick it is to get the money you need into your account. This makes it perfect for unexpected financial situations or emergencies. Payday loans are available to a wide range of customers and a good credit score is not usually a necessity.
Payday loans are designed to be repaid shortly after your payday from your place of regular employment and therefore, they are never a long term solution to any financial problem or emergency.
What Are The Advantages Of A Payday Loan?
A payday loan has a range of advantages, which is part of the reason why payday loans in the US are so popular. When you need to borrow money online, they are one of the best options, so long as you pass the eligibility criteria of the lender in question. There are however, alternative loans that you may opt for in place of payday loans, but understanding when and why to use a payday loan can help you choose. Advantages of payday loans include:
- Payday loans cater to a wide range of credit scores which means even those with a poor credit score can borrow money they need
- Quick and easy to apply, often only taking a number of minutes if you’re applying online
- Money is in your account fast, many payday loan providers can have money in your account before the end of the day
- Paying back a payday loan on time can help to improve your credit score, giving you more options for borrowing in the future
- They are legal in over 30 states across the US, with lenders being able to offer loans including quick loans in Florida and fast payday loans in Texas
Drawbacks To A Payday Loan
A payday loan does come with some potential disadvantages, whether you need to borrow $500 or even more. You should also remember that payday loans should always be treated as an emergency option and they should only be used in times of financial crisis and when you have no alternative. You should always seek to ask friends and family and even existing creditors to assist with financial emergencies, before you turn to a payday loan in any circumstance.
Payday options are often considered a very expensive way to borrow money. Because the loans are so easy to secure and available to a wide range of credit scores, interest rates tend to be high. Payday loans can become difficult to pay off if you do not keep up with your repayments. Interest rates are often high which means holding onto your loan for an extra couple of months could cost you a lot in interest. Payday loans can also come with fees if your loan rolls over.
What Is An Installment Loan?
An installment loan is a more of a long-term loan option, compared to the likes of payday loans. Installment loans are, as their name suggests, designed to be repaid in installments, over an agreed timeframe. These loans may be given for between 3 and 5 years with a set monthly payment.
An installment loan often lets borrowers borrow a larger sum of money than a payday loan. Installment loans don’t have any hidden fees and have a clear and fixed interest rate making them very transparent. They are ideal for a customer who needs to borrow a large chunk of money but wants plenty of time to pay it off, being able to more efficiently manage their money, debts and repayments. If you have bad credit, a lender may prefer this type of loan as your repayments will last longer, but will often be for smaller amounts, making the loan more manageable to repay.
What Are The Advantages Of An Installment Loan?
Installment loans, like payday or even cash advance loans in the USA have various benefits, which make them appealing to millions of borrowers across the US. These loans can be increasingly found online, rather than in payday loan stores, although some stores in some states may still be able to lend installment loan options.
Advantages of installment loans include:
- Clear and transparent timetable for paying back your loan with fixed interest rates
- Payments can easily be worked into a monthly budget plan
- No unexpected costs or fees
- Most installment loans are unsecured and you can be approved for a larger amount of money than you would be with a payday loan
- A viable alternative to payday loans if you need it
- Offered across the USA in states where payday lending is legalized
Disadvantages of Installment Loans in the USA
Much like with any loan type and finance option, there are disadvantages to taking out an installment loan. Installment loans tend to only be available to borrowers with excellent credit, meaning an installment loan may not be an option for you if you have a low, poor or bad credit score. If you have a bad credit score, the likes of no credit check loans and others are more likely to be suited to your circumstances, but you will still need to meet eligibility criteria set by lenders.
In addition, because you are paying the loan off over such a long period of time you tend to pay a lot in interest overall. Interest for installment loans will also tend to be compounded, meaning that as the loan rolls on from month to month, each month you will pay interest on loan capital plus accrued interest and some lenders may charge early repayment fees for these loans if you seek to repay your loan early for this reason.
Lastly, if you are struggling to make your payments on your installment loan it can be very difficult to renegotiate the terms of your loan.
Which Type Of Loan Is Right For Me?
Whether an installment or payday loan is right for you is a question that only you can answer. It is worth considering the advantages and drawbacks of both a payday loan and an installment loan. If you are in desperate need of a personal loan and need the money fast, a payday loan might be the best way to go.
However, if you need a larger sum of money, an installment loan might be the best option for you. It is definitely worth taking some time to do further research into both options and talking to potential lenders to see what offers are available to you. Every borrower will have a different set of requirements for their loan so take the time to consider which company and which type of product is best for you.