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Payday Loans and Installment Loans – How to Make a Wise Decision?

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Payday Loans and Installment Loans – How to Make a Wise Decision?

Payday Loans and Installment Loans – How to Make a Wise Decision?

Nowadays there are all kinds of loans available to borrowers. This provides a variety of options to an individual on the one hand, but on the other hand, it requires certain knowledge so that the borrowers can figure out which loan satisfies their needs and possibilities best. Let us have a look at two popular loan types – a payday loan and an installment loan.

What is an Installment Loan?

An installment loan is either a secured or unsecured loan (one that does or does not require a pledged property) that is provided for a fixed period of time with a quite high interest rate (see the details below). The paying off takes place in installments over a certain period of time, hence the loan name. Many mortgages and loans are in fact installment loans. There are quite a few installment loan providers that are available online.

Installment Loans Pros

Installment Loans Cons

  • Fixed interest rate, that is to be paid each month, provides a secure and foreseeable process.
  • Relatively long periods of loan repayment – from 6 month to 5 years.
  • Amounts available from $150 to $100,000.
  • Not complicated obtaining process – within a couple of days money is usually transferred to the bank account or is available in cash.
  • High interest rate (APR) is one of the biggest disadvantages. It ranges from 25 to 100% and depends on the exact loan type. 
  • High penalties for not making a monthly instalment on time. 
  • Secured property (unless it is unsecured loan) is sometimes required in case of an unpaid loa

What is a Payday Loan?

Payday loans provide smaller amounts in a shorter time period as compared to the installment loans. Borrowers that do not have a perfect credit history can still apply for this kind of loan. The loan provider offers the money which is usually to be repaid with the next paycheck, including the APR. In this case the paycheck presents a loan security and no collateral is required. Just like the installment loans, payday loans are often available online.

It has to be noted that payday loans are not permitted in some states. 

Payday Loans Pros

Payday Loans Cons

  • Extremely easy and fast to get, often the only prerequisite is having a stable income. Usually after approval of the application the money is available right away. 
  • Individuals with a bad credit history can apply for the loan when there are no other loan options are available. 
  • There are many payday loan lenders both off- and on-line in the states where this kind of loan is legal. 
  • It is one of the most expensive loans – the APR can be over 300% which, as a rule, makes it an option only when no other options are available. 
  • Short time periods when it has to be repaid – usually in up to 30 days. 
  • Limited amounts of money available – from $100 to $1500.

 

 

 

What Option is best for you?

Taking into consideration the information outlined above, it is essential to analyse the following factors before making a choice:

  • First of all, consider the amount you need and the period of time over which you can repay the loan. If a smaller amount is needed as soon as possible and there is a possibility to pay it back fast with your next paycheck – payday loan might be an option. 
  • Consider your credit history. If it is good enough, installment loan might be a less costly option.
  • How sure are you about the repayment possibility?  Timely installments within the installment loan can improve your credit history, while not being able to make monthly installments can negatively affect it. Not paying off the payday loan on time usually results in extremely high additional charges and fees.
  • Take into consideration that the APR changes depending on the state as well as the amounts provided can be limited in each particular case. Thus a careful research is needed on the state legislature regarding this issue.

All in all, the type of loan that is right for each borrower depends on the needs and possibilities in each particular case. Only careful consideration of every given situation as well as advantages and disadvantages can result in the right choice.

 

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