Rising inflation rates and the increasing need to improve the quality of life sometimes leaves us short of money. Ups and downs are part of our lives so an instant need for money can arise anytime. At other times, we might need to buy something that is the need of the hour and we might not have enough money to pay for it. In such times, taking out a loan can come in handy. Today, we have different types of loans that can come handy in your time of need.
In this article, we will be discussing two commonly known loans namely payday loans and installment loans. The difference lies between the amount of the loan and payment procedure. The reason people choose these two types of loans is because they don’t require an extensive credit history unlike lower rate loans.
What is Payday Loan?
These loans can be quite helpful for emergency situations. It is a short-term loan that is usually paid back on the borrower’s payday hence the name assigned to it. The requirement of taking out a payday loan is not that strict. So, what do you need for a payday loan? The borrower needs to be at least 18 years old, should have a bank account and a consistent source of income. The amount of money loaned ranges between $100 and $1,500. Payday loans can be borrowed through online services and there are companies that work in this field as well.
What is an Installment Loan?
Installment loans are quite similar to payday loans. Like payday loans, installment loans are also short term but they are used for longer financial struggles. You can also borrow a larger amount of money as compared to payday loans ranging between $1,000 and $2,000 and you can borrow more than that in some cases. The main difference between payday loan and installment loan is that installment loans can be returned to the lender in installments divided over several months. Moreover, you can choose among various installment loan types.
How Payday Loans Work?
The borrower hands a check to the lender which includes the amount of money borrowed plus the fee being charged by the lender, the check is post-dated and the lender keeps the check and then cashes it on borrower’s payday.
How Installment Loans Work?
The procedure for an installment loan is a bit more systematic and sophisticated as compared to the one for payday loans. To begin the procedure, the borrower applies for the loan and has to indicate the reason for borrowing to the lender. Installment loans are usually based on a larger amount of money so the reasons for taking them out can include buying a car or similar items that cost a large amount of money. The discussion before the lender lends the money includes points like amount of down payment, terms of the loan, payment schedule and payment amounts.
Differentiating Payday and Installment Loans
The following are some points that make payday and installment loans different from each other:
Amount of Borrowed Money
Payday loans can range from $100 to $1,500 while installment loans are larger in amounts ranging from $150 to several thousands of dollars.
Payday loans are supposed to be really short-term and are paid back within a month or less time. On the other hand, installment loans have a pre-decided number of installments to be paid over a pre-decided number of months.
Payday loans are usually not usually not secured, unlike title loans in Reno, NV. The lender does not assess the borrower’s ability to payback based on any credit history but on how quickly did a borrower pay back during previous times. Installment loans are secured. The typical way to secure such loans is with personal property which does not include real estate. Collateral items might include cars, electronic appliances and jewelry.
Case of Failing to Pay
If a borrower fails to pay his payday loan, then the full amount is rolled over but the borrower has to pay additional interest along with the original amount of money that is due. Installment loans can be renewed every few months but new interest is charged.
With payday loans, the borrower is only paying the interest as the additional amount of money but the case is different for installment loans. Borrowers have to pay additional charges like application fee, processing fee and late payment fee when using installment loans.
Which is More Convenient?
In general, nobody likes to take a loan because it feels like a burden. However, loans can be a great help in cases of emergencies. The question is which loan to choose if we are given the option of taking out a payday loan or an installment loan. Payday loans seem like a quick and instant solution but it’s one of those things that gradually sets a trap around you. Payday loan payments seems easier at first glance but the amounts of interests being charged are exceptionally expensive. Moreover, payday loan companies don’t have a good reputation. On the other hand, installment loan payment is easier to pay as you pay back in increments. The process is also more sophisticated and seems reliable. A person can also choose among different installment loan types according to what their personal need is. The borrower might have to pay some additional charges but installment loans are a better choice against payday loans since the whole procedure is carried out with better planning and it is safer.
Financial loans through reliable and authentic financial institutions can be a great help. However, before you take out any type of loan, it is advised to do some personal analysis to ensure that your need is genuine and that you can pay back in time. Choosing the type of loan can depend on your needs and how quick you want the loan to be approved. Loans generally mean debt and it’s always difficult to pay off in one go so people generally lean more towards installment loans.