October 28, 2016, 10:39 am

Payday vs installment loan: Knowing the difference

by: The Financial Blogger    Category: Banks and You
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If you’re in need of extra funds, you may consider taking out a payday or installment loan – but what’s the difference? Financial jargon can seem complicated but this article will explain in simple terms what each of these borrowing options entails and how the differ from one another.

Installment loans:

Installment loans are a great option for many, making it straightforward to borrow small or large sums of money and paying the owed amount back via regular installments over a set period of time – this is usually from six-months to a couple of years.

Installment loans for bad credit scores are particularly important, as the borrower is given an opportunity to show they can make repayments on time and stick to a pre-organised payment schedule.

The money available via this type of loan can also be used to pay back debt that’s been consolidated in one swoop rather than having to deal with multiple creditors at the same time – which is, of course, an attractive option for those being hounded by various companies.

In short, loans of this kind are a handy solution for long-term cash needs and a good option for those looking to pay money back in increments. While interest rates vary, all costs are transparent and those entering a contractual agreement know what’s expected of them in advance. There are no secrets and reputable companies will also try to keep interest rates down to ensure your finances are as healthy as possible.

Payday loans:

Like installment loans, instant payday loans give people access to cash when they most need it – the difference is that smaller sums are usually available and the money has to be paid back usually within a 30-day period, either via a predated cheque or automatically via Direct Debit.

Due to the convenient nature of such a loan, interest rates tend to be sky high and borrowers are recommended to ensure they can pay the full amount back in time, to avoid incurring additional fees. This type of loan is also usually unsecured, with lenders assessing the borrower’s ability to repay by viewing recent paycheques. In contrast, installment loans tend to be secured by assets such as personal property, excluding real estate.

Of course there are pros and cons to both options and all aspects of taking out a loan should be considered in full before any action is taken. Installment loans tend to be the much more obvious solution for those who require a larger sum of money with a longer repayment plan, whereas payday loans are perhaps best for those looking for an instant cash injection who are not particularly worried about high interest rates – because they know they can pay the money back in time.

There are many reasons why people apply for a loan, but if you decide to contact a lender be sure to do your homework and avoid many of the common pitfalls, such as borrowing more than you can afford.

 

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