The Difference Between A Payday Lender Vs Installment Lender

by Credit Faire July 17th, 2020

Many of us don’t have enough to cash to make ends meet if expensive and unexpected events come up. Most of us have less than $1000 in our savings at any given moment. If something comes like a car accident, a hospital visit, or maybe just much needed home repairs, you might find yourself worrying about how to pay your current bills. When you don’t have much savings and life is making things difficult, making ends meet is tough – that’s where payday loans and installment loans come into play. But what’s the difference between a payday lender vs installment lender?

Both of these types of lenders issue personal loans used to help you pay things off quickly. However, one is WAY better than the other in terms of financial health, so we thought we should go over the differences and which one you should consider.

Everything You Need To Know About A Payday Lender Vs Installment Lender

The quick run down is that installment loans are a broad category personal loan that could include mortgages, car loans, and more. They tend to be longer terms and usually require a credit check. Payday loans, on the other hand, are technically a type of installment loan, but they have a much shorter payment term, extremely high interest rates, and don’t usually need to check your credit. You might hear companies use the term “short term installment loan” which is just another way of saying payday loan.

Read on as we get into the ins and outs of a payday lender vs installment lender.

What Is A Payday Lender? 

Typically, payday loans are small loans that are usually under $1000 that is due on your next payday. Oftentimes, these lenders will require you to write a post-dated check to give them access to your bank account so that they can withdraw funds you owe on your next payday. 

However, the problem with payday loans is that they design them to make it hard for you to pay them back. They will allow you to rollover the loan and postpone payment to your next payday, but you’ll have to pay more interest (and probably some late fees as well). The interest rates on average are around 400% APR. 

You’ll soon find yourself trapped in these payday loans as the extremely high interest rates start to snowball and overwhelm you. 

What Is An Installment Lender?

On the other hand, installment lenders give out all sorts of personal loans. Mortgages, car loans, boat loans – sometimes they are comparable to payday loans if they aren’t being labeled specifically for one of those purposes. 

As with any installment loan, you get a lump sum of money right away, and then you pay a fixed amount monthly over the course of the loan. It could be a five year car loan or a 30 year mortgage, though most personal installment loans are usually around 12 months.

Most installment lenders will require at least a soft credit check and an application process to determine whether or not they think you’ll be able to pay them back. Interest rates on personal installment loans will be so much lower than payday loans, typically 3% APR vs the 400% we mentioned above.

Remember, if the company you’re looking to lend from is using terms like “short term installment loans,” they really mean payday loans, not installment loans, and they are not going to make it easy to pay back.

Which One Is Better? 

Really, anything is better than a payday loan. Payday loans are designed to keep you trapped in the debt cycle. If you qualify for a personal installment loan, you should definitely choose that over payday loans that seem fast and easy but really just cause you more pain. Typically these payday loans will mean a mountain of more debt, annoying collection calls, and potentially even lead to bankruptcy.

Installment loans are one of the safest ways to borrow money, and when you continue to make payments on time, they actually help you improve your credit. Here’s the bottom line – installment loans are safer, give you more money with more time to pay them back, while payday loans are traps to pray on the financially vulnerable.

How To Qualify For The Right Loan

Most installment loans are generally credit-based loans. This means that they consider your income, your current debt, your credit history, and other factors that might influence your ability to pay back the money you’re asking for.

If you have great credit, your APR could be around 3-6%, though if your credit isn’t that great, you might have a rate of 30%. Some lenders charge certain fees and have prepayment penalties, so make sure you do your research before choosing a lender.

Especially if you don’t have amazing credit, we suggest looking for installment lenders that specialize in serving people with poor or no credit.

Choose Credit Fair-E

At Credit Fair-E, we want to help you break the cycle so that you aren’t continually getting trapped by debt and help you on your path to better financial health. That’s why we’ve designed our loans to help you meet your financial needs while making sure to not overwhelm your current obligations. It’s our mission to help you get your credit back on track so that you might be eligible for better terms in the future. What are you waiting for? Learn more about what we do and how we can help you here.

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