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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 usually due in a single payment on your next payday. They have a much shorter term and extremely high interest rates, and the lender often skips a traditional credit check. You might hear companies use the term “short term installment loan” for products that can cost as much as a 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 and unsecured personal loans all work this way.
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, while personal installment loans often run from several months to a few years.
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 are usually much lower than the 400% we mentioned above, though they vary widely by lender and credit profile.
Remember, if a company uses terms like “short term installment loans,” check the APR and the total cost, because some of these products cost as much as payday loans.
Which One Is Better?
A payday loan should usually be a last resort, because it can 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 generally a safer way to borrow than payday loans, and when you make payments on time to a lender that reports them, they can help your credit. Here’s the bottom line – an installment loan usually gives you more time to pay, while a payday loan can be a trap. The cost of either depends on the lender, so compare the APR.
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.
Your APR depends heavily on your credit. Borrowers with strong credit tend to get far lower rates, while borrowers with weak credit may pay 30% or much more. 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 Carefully
Whichever loan you choose, make sure it meets your financial needs without overwhelming your current obligations, so that you aren’t continually getting trapped by debt. If you decide to borrow, see your loan options and read the terms of any offer before you accept.