Brainy Loans
A comparison of payday loans and installment loans
Payday loans will be the type of short-term loan usually till your next payday designed to help borrowers with bad credit or little credit history with access to some cash. However payday loans often have extremely high-interest rates, sometimes as much as 400%.
Additionally, payday loan lenders might engage in unethical strategies such as chagrin hidden fees, rolling over loans with additional fees, and even harassing borrowers that have a hard time making payments on time. Taking out a payday loan to cover everyday expenses without having a plan to repay it can put you in a debt cycle, where borrowers can find themself not able to repay the loan forcing them to take another payday loan to cover the first one.
On the other hand, installment loans are usually considered a safer and more expensive way of borrowing. With an installment loan, you as a borrower are able to receive a lump sum of money and make payments in installments over a period of time.
The interest rates on installment loans will be typically a lot lower than payday loans and having a fixed payment will make it easy for the borrower to plan ahead. Despite the high-risk payday loan industry will surpass 42.6 billion with a 4.1% CAGR GROWTH. As a borrower, you should always consider every option before considering applying for a payday loan.
Installment loans explained
An installment loan will be a loan that allows a borrower to receive money upfront and repay the loan over time in installments. These types of loans can be secure or inserted meaning your ability to put up collateral.
With installment loans, you are able to use them for things such as large purchases, bills, vacations, and any unexpected expenses. Getting an installment loan will give you fixed terms, meaning you will have the same payment and interest throughout the life of the loan.
The terms will depend on many factors such as the borrower’s credit history, credit score, income, debt, and other personal information. But installment loans will come with much lower interest rates compared to payday loans and often can range anywhere from one to seven years making the payment lower each month. Installment could be a great choice for your loan needs but it is important for the borrower to understand terms and conditions before agreeing to any loan offer.
Payday loans explained
Payday loans will be short-term loans that are usually borrowed until your next payday. These types of loans will range anywhere from a few hundred dollars up to a few thousand.
These loans were designed to provide borrowers with immediate cash to cover unexpected expenses. The application process with payday loans is super lenient and often just requires proof of income and a valid bank account, meaning that most individuals will get approved.
Even though payday loans are designed to be easy to use you should leave them as your last resort loan. With payday loans, you will receive high-interest rates, fees, the trap of debt, impact on credit, and lack of regulation.
Due to a lack of regulation in the payday loan industry lender may engage in predatory practices such as excessive fees and trapping the borrower in a spiral of debt. Overall payday loans can be a quick relief from unexpected expenses but can be super risky and should be used as a last resort.
Installment loans vs. Payday loans
Both payday and installment loans will be loan products designed to provide you with the cash you need to cover your expense. The main difference between both of the loan products would be the amount you can borrow, fees associated with the loan, terms, fees, and interest.
Before choosing any loan product you need to make sure you shop it with multiple lenders to choose the right option for you, here are comparisons of both loan options:
Installment Loans | Payday Loans |
Large loan amounts can range anywhere from $1,000-$100,000 depending on the lender. | Smaller amounts in most cases few hundred dollars. |
Longer terms range anywhere from one to seven years. | Short terms usually till the next payday, so for a few weeks only. |
Lower interest rates and fewer fees apply compared to payday loans. | Extreme high-interest rates and fees are associated with the loan. |
Lower payments due to the amount borrowed can be spread over a long period of time. | Provides immediate cash to pay for an emergency expense. |
Easier to budget with because of the fixed payment you will receive. | Not as regulated which increases the chances of you being taken advantage of. |
Late payment or defaulting on the loan can negatively impact borrowers’ credit profiles. | Borrowers can end up in a debt trap which is a debt cycle where you have to get a new loan to pay off the old one. |
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