If you are in need of some extra cash you may be considering an installment loan or a payday loan. However, many borrowers do not know the difference between the two. Understanding the significant difference between these two types of loans will help you make the right decision for your financial future. Once you have a good idea of what your specific needs are, it will be easy to choose between the two.
Payday loans and installment loans have quite a few similarities but several differences as well. Here are the characteristics of a payday loan:
* The loan amount is typically ranges anywhere between $100-$1,500.
* A payday loan is traditionally short-term and is supposed to be repaid within 30 days or sooner. Payment is typically due when the borrower gets paid.
* The loan is often repaid through a check that is post-dated or by an automatic withdrawal from the borrower’s bank account.
* The lender will charge an annual percentage rate for the loan which can be fairly high.
* The loan is not secured and the decision to allow the borrower to obtain the loan is based on their previous pay and net salary.
* If you are unable to pay off the debt then it typically rolls over and an additional fee is added.
* No credit checks are required.
Installments are a little bit different than payday loans. Here is some information about installment loans and how they work:
* Installment loans typically range anywhere from $200 all the way to thousands of dollars. These loans are paid in monthly installments as opposed to being paid via a blank check or an automatic withdrawal.
* Annual percentage rates for installment loans are quite a bit less than that of a payday loan. They can range from 25-100%.
* You can renew these every few months or so with added interest and fees.
* These loan types are typically backed up by collateral such as personal property or another type of real estate. Sometimes items such jewelry and firearms will be accepted.
* Good credit is a must if you want to get an installment loan of a high amount.
It basically comes down to whether or not you prefer to pay off loans when you receive a paycheck or on a monthly basis. The amount is definitely a factor as well since installment loans allow you to borrow much higher amounts. You also have to have good credit. Both are good options if you are in need of extra money.