If you are faced with a situation where you need extra cash to cover an unexpected bill or make a home repair, you might look at a loan. The type of loan is important, installment and payday loans are the two most popular ways to get the cash you need in the fastest way. Knowing the differences in their terms and rates will help you choose the right option.
Below are the main differences between the two loans:
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Installment Loans |
Payday Loans |
| Higher lending amounts given, depending on your needs and what the lender will give you
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Loan amounts are typically between $100.00 – $1,500.00
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| Payment terms can go as long as five years | Payment terms are between 14-30 days |
| Rates are lower | Rates are very high |
| Rates are very high | No credit check required |
Installment Loans versus Payday Loans
An installment loan is a type of loan where you have a set monthly payment over the term agreed upon. You will receive a lump sum that you will pay down with interest and once it’s paid off it is closed.
There are a couple of types of installment loans: secured and unsecured.
- Secured loans need collateral to borrow money. If you fail to make payments the lender can take your collateral. This loan offers lower interest rates than an unsecured loan.
- Unsecured loans no collateral needed, but if you don’t pay your credit takes a big hit. This type has a higher interest rate, but you don’t risk losing your collateral
Installment loans are generally credit-based loans, meaning your income, current debts, credit score are factors that are taken into consideration when a lender is making the decision to give you a loan and the terms and interest rates of the loan.
A payday loan is another option if you have less than stellar credit or no credit at all. Per its name, this is a short-term loan that can give you up to $1,500.00 extra cash until your next pay. It has a very high percentage interest rate that can be equivalent to over 500 percent annually due to the fees added. This type of loan is paid in one lump sum at the end of the loan’s term. Payday loans are fast and easy to get if you meet the loan requirements, legal age and proof of steady income.
If you are still debating between the two, remember that by this comparison installment loans are the more secure way to borrow money. If you make on-time payments, an installment loan can actually help improve your credit.