Installment Loan or Payday Loan?

by Payday Tree Finance Analyst

Installment Loan

It is an effective financial plan that one can consider during hard times. Emergencies and unexpected expenses cannot be predicted. Installment Loan is repaid over time with a set number of scheduled payments. The term of this loan may be as little as few months and as long as 30 years. This financial plan will let you borrow sufficient amount of funds that you repay over a period of time in fixed amounts.

Pros And Cons Of Installment Loan

With equal and predicted payment over a period of time, Installment Loan is generally considered more reliable loan offer than any other forms of credit.

Pros

•    Best to be applied in hard times
•    With this type of loan you exactly know how you need to repay each month
•    Easy to anticipate
•    Simple qualifications
•    Such loan typically offer fixed interest rates for the duration of the loan
•    Borrowers with good credit score can get low interest rate that could help them save hundreds of dollars over the loan term

Cons

•    Such kind of loan is less flexible
•    It often carry prepayment penalties
•    It tempt you to borrow more than required as the applicants are generally approved for good amount of sum
•    It may require collateral such as a certificate of deposit, savings account or the equity in your home

Payday Loans

Payday Loans are short-term based loans that provide immediate financial relief during emergencies. They are generally provided to all those salaried people who are living their life paycheck to paycheck and got caught with unexpected expenses.

How Do Payday Loans Work?

Payday Loans loan application process is easy, smooth and straightforward. It is just a matter of few minutes to complete the Payday Loan application. Payday lenders will conduct a credit checking on all the applicants to determine their credit worthiness. When the loan is approved, funds will be directly deposited to your bank account in few working days.

Pros And Cons Of Payday Loans

Pros

•    Payday Loans are easy to access
•    Quick and easy application process
•    It is an unsecured loan
•    No restrictions on the usage of borrowed funds

Cons

•    Payday Loans are expensive
•    High rate of interest and high APR
•    They are considered predatory
•    It’s easy to get trapped in a debt cycle
•    Payday lender target low-income people, minor communities
•    Payday lenders can sue you for the money you owe

Qualifications For A Loan

•    An applicant should have legal age of eighteen years or more
•    It is required to hold a valid active bank account that accepts direct deposit
•    It is required to prove your USA citizenship or permanent US residency proof
•    An applicant needs to be show his/her regular income proof

Where One Can Find A Loan

After you have qualified for an installment, you can begin comparing loan offers to find the lucrative loan deal. Here what you can consider-

Traditional Banks

There are various banks in CA that offer installment as well as Payday Loans. Besides finding the best loan deal, you must also check if there are any hidden charges and fees. Just remember that each bank application may result in a hard credit check, which can negatively affect your credit.

Online Lenders

Online lenders may be a convenient option, as you can complete the loan application process while just sitting at your home comfort, in just few clicks of mouse. Most online payday lenders allow you to submit a loan application with a soft credit check which won’t hurt your credit score. Another perk of shopping for loans with online lenders is that how quickly you will receive your funds once approved.

Credit Unions

Another finest option to apply for loans is from an established credit union, such as Navy Federal, Alliant and PenFed. Also, credit unions have some of the lowest APRs, which will surely work in your favor as it can give you a small monthly payment.

The Difference Between Installment Loans And Payday Loan

Installment Loans and Payday Loans have structured differently. Installment Loans are meant to repay in a number of small and fixed installments. These payments generally occur on a weekly, fortnightly and monthly basis. On the other hand, Payday Loans are designed to repay quickly, usually within two to four weeks. They are required to be repaid in lump sum (the principle loan amount as well as the interest charged). Payday Loans are expensive as they are charged with higher rate of interest, due to it short term and collateral free nature. Thus, borrowers are more likely to trap in cycles of debt.

Installment Loans tend to be for larger sums of money than Payday Loans. The principal of a Payday Loan is usually up to $1,000 while the principal of an Installment Loan is generally more than $1,000 and can be tens of thousands of dollars, especially for mortgages.

The repayment term for Installment Loans are longer as long as 30 years in the case of a mortgage and that’s why the payments are quite affordable. The longer the repayment term, the smaller the regularly scheduled payments are. The typical APR for an Installment Loan is much lower than that for a Payday Loan, which can be as high as 400 percent. These high APRs combined with the short repayment term of Payday Loans often make it difficult or almost impossible for borrowers to repay.

The Conclusion

By comparison, Installment Loans are considered such safer way to borrow money in hard times than that of Payday Loans. They are safer, higher-dollar and longer term than predatory Payday Loans which are short, expensive are designed to trap when you are financially vulnerable.