Staying on top of your finances can be tough at times. Even with constant and tight budgeting, you may still find yourself in situations where you need to borrow money to cover unexpected expenses, pay outstanding debts, or make large purchases. Unfortunately, getting the funds as fast as possible can be frustrating if you don’t know what to look for.
Installment loans and payday loans are among the viable options you can consider. While both loan options can provide fast cash for any purpose, they may not always be the right fit for you. These loans have key differences that you need to understand to better plan and manage your finances.
Read on to find out how installment loans and payday loans differ, and see which option works better with your financial constraints.
What Is An Installment Loan?
An installment loan is a type of loan where you get a lump sum and pay it back along with interest in fixed monthly payments. There are different terms for installment loans and these terms refer to how long you need to pay the loan. The loan term can be as short as two weeks or as long as 30 years.
Several factors like loan amount, credit profile, and repayment terms may affect the interest rates of an installment loan. However, the interest rates are typically around 6% to 36%. While there are different types of installment loans, the most flexible one is a personal loan. This type of loan is usually unsecured, meaning you don’t need any collateral to get approved. You can check out online loan options like Creditninja.com for their personal loan offerings.
What Is A Payday Loan?
A payday loan is a short-term loan you can take out in small amounts. Although most lenders don’t evaluate your ability to repay the loan, the amount you can borrow may still vary depending on your personal finances and state’s laws. The common limit for payday loans is usually between $300 to $1000.
You need to repay a payday loan with its interest in a single payment on your next paycheck or other income source like pensions. The average loan term is two to four weeks after the loan was taken.
Most states have capped the interest charges for payday loans. Be sure and familiarize yourself with the regulations in your state.
Which One Is A Better Option For You?
Both installment loans or payday loans come with benefits and drawbacks. To help you figure out which one is a better option for your financial constraints, we’ve highlighted some important things you can factor in your decision-making.
Purpose For The Loan
Although you can use both installment loans and payday loans for any purpose, it’s vital to specify what you’re going to do with the money. That way, you’d be able to determine how much you actually need.
If you need a sizable loan that will allow you to make a big purchase, like a home or car, an installment loan will make a great option. But if you only need small cash in a short period, a payday loan might be a good solution.
Installment loans are generally credit-based loans, which means that your credit history will influence your ability to get approved. So it may be more difficult to qualify for an installment loan if you have bad credit. Since a payday loan application doesn’t typically involve a credit check, you have a better chance of getting the fund you need regardless of your credit history.
Payday lenders are much more lenient when it comes to their requirements. This explains why it’s easy to get payday loans. However, they are designed to be repaid quickly, and there’ll be more interest and penalties if you cannot pay back on time.
On the other hand, an installment loan can give you more flexible repayment terms. It’s more manageable since you’ll be paying the whole loan and its interests in smaller and regular payments. But because the repayment period is longer, you can still end up paying more interest.
It’s worth noting, though, that some payday lenders offer repayment plans that allow borrowers to pay back their loan in more than one payment. Nevertheless, it’s critical to consider which terms will work better for your specific needs.
The type of loan you choose ultimately depends on your circumstances and preferences. Just make sure that you go for something that will not complicate your financial situation. Whether you opt for an installment loan or a payday loan, you have to think about how you’re going to repay it. So, as much as possible, consider not only your present needs but also the future financial risks before making your choice.