Payday Loans vs Installment Loans: There are two types of loans which are highly selected by the users i.e., Payday Loans and Installment Loans. In the following article, we will discuss in detail the Payday Loans vs Installment Loans. Both of the loans have different meanings, working processes and more. Individuals must look deeply into both of the loans and then decide which will suit them the best. Let’s understand both Payday Loans vs Installment Loans by starting with their meanings.
Payday Loans vs Installment Loans
Payday Loans are usually short-term loans with high interest based on the income level of the users. The principal of these loans is equal to a part of the beneficiaries’ next paychecks. Payday Loans are usually used when the borrowers need an immediate loan. So, the situation of the borrower is used by charging a higher interest amount than the normal one charged by other types of loans.
Under the Installment Loan, borrowers get a fixed amount which needs to be repaid with scheduled payments. Each payment which is made to repay the instalment amount consists of some portion of the principal amount and the interest on the debt.
The size of each loan payment is determined by variables including the amount of loan, charged interest rate and the term of the loan. The payment amounts usually remain the same through the loan tenure which makes it easy for borrowers to adjust the budget in advance for the payment.
How do Payday Loans vs Installment Loans work?
Payday Loans providers usually need interested users to show valid proof of their income. This proof usually includes the pay stubs of the respective employer. After the verification, the officials will lend a part of the money that the borrowers will have to pay. Generally, beneficiaries will have to pay back the loan within a short time i.e., 30 or fewer days.
The lenders take a lot of risks while providing Payday Loans as the officials check the credit and their ability to pay back the amount under the Payday Loan. This is one of the reasons behind charging high interest and high fees if the payment is not made on time. With the help of this, most of their money will get back.
Installment Loans allow the users to borrow only the amount which has been approved, and payout in a lump sum. Borrowers can repay the loan amount over a few weeks to several years (depending on the amount of loan). Generally, the interest rate on the Installment Loan is fixed and it needs regular payment every month.
These monthly payments go to the borrowed principal amount and the interest on the loans. Beneficiaries will keep paying the amount over a long period. Once, the whole amount along with the interest is paid, the account will be closed by the lender.
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Advantages and Disadvantages of Payday Loan
Payday Loans have their advantages and disadvantages. One should take a look at both of them to understand whether the payday loan will suit them or not. The following are the advantages and disadvantages:
| Advantages | Disadvantages |
| The loan amount will be processed shortly | The interest rate to repay the loan is very high |
| Requires fewer documents and formalities to approve the application | It is likely to be trapped easily in a debt cycle |
| The credit scores are not checked to get these loans | It does not help increase credit scores. |
Advantages and Disadvantages of Installment Loans
Installment loans are flexible and allow users to pay back the amount according to their ability. The interest rate is also less. Let’s take a look at the advantages and disadvantages:
| Advantages | Disadvantages |
| Ability to finance big purchases | High loan fees |
| Payment amount typically stays the same throughout the loan term | Late or no payment will highly affect the Credit Scores |
| Possible to save interest amount by repaying the loan to lenders early | Take more time to process the loan application |
Which one you should choose?
Now, the real question is which one should you choose between Payday Loans and Installment Loans. The answer lies in the situation of the applicants. If the user wants to borrow some money instantly due to an emergency, they must prefer Payday Loans. However, if a person does not want to face the high interest rate and has no rush to get the payment should always choose Installment Laon as they are safer and secure.
Frequently Asked Questions
Where can you get the installment loan?
Installment loans are widely available in different banks, credit unions and online lenders.
Are Payday Loans Secured or Unsecured?
Mostly, payday loan is unsecured which means there is no need to pay any collateral to get the loan.
Which one is more safe Payday Loans vs Installment Loans?
Installment Loans are more safe as they provide more time to repay. Both loans are risky but installment has less risk than Payday Loan.
