Understanding Payday Loans vs Personal Installment Loans

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There are so many different types of loans for borrowers to choose from.  Loans on cars, debt consolidation loans, payday loans and personal loans to name only a few.  Some are also referred to as installment loans in which the borrower pays back to the lender on a monthly basis.

Personal loan vs. Installment Loan vs. Payday loan

Personal LoanInstallment LoanPayday Loan
Loan Amount $2,000 to $50,000 $1,000 - $4,000 $100 - $300
APR 3.45% - 35.99% Up to 199% 300% - 650%
Loan Length 24 months - 72 months 12 months - 36 months 7 to 31 days
Funding Speed Within 1 - 2 business days Within 1 - 2 business days Within 1 - 2 business days
Popular Lenders Upgrade, Avant, Best Egg Opploans, NetCredit CashNetUSA, CheckCity
Compare
Credit Check Soft Pull then hard pull upon acceptance of the loan Soft Pull then hard pull upon acceptance of the loan Usually no credit check
Shows Up in Your Credit Report Usually not
Loan Use Debt Consolidation, home improvement,
vacation, medical bill, funeral, major purchase
car repair, medical, major purchase, family & kids bill Emergency, rent, medical bill, utilities, car repair
Loan Term Long Term Medium Term Short Term
No Collateral
Improve Your Credit
Bad Credit Friendly Depends

Payday Loans:

A payday loan usually comes with a high price tag that has enormous interest attached to it.  These loans are usually offered through payday lenders or loan matching service and are available everywhere locally, including the internet.  Many lenders secure their payments through your bank account.  The total amount is due on a given date and paid using a post-dated check.

The Advantages:

These loans they are very easy to get as long as you have an income.  The loans are usually processed on the same day.  They are very appealing if someone is a little short on funds and their rent is just around the corner.

Payday loans are convenient both around town or on the internet. These loans are really good for those who do not qualify for other loans and just about everyone qualifies.

The Disadvantages:

As mentioned earlier, these loans have high interest rates even though they are convenient.  Keep in mind, like other lending services, there are scam artists out there as well.  You need to research and make sure the lender you want to deal with is legitimate.  Usually, borrowers will only take out a small amount that is easy to pay  back when they get paid.  Here you can see a list of our recommend payday lenders.

Installment Loans:

These loans are very similar to payday loans but you make monthly payments.  The interest rate is generally more friendly than payday loan and if you only want a small loan, many of these places only offer a large amount of money. If you can’t afford what they qualify you for, talk to them and see if you can get a smaller amount.  Some will work with you while others won’t, again, shop around. These loans are harder to qualify for than payday loans.

The Advantages:

You have the convenience of monthly payments instead of paying back all at once.  Unlike payday loans, you will agree to have a certain amount taken out of your account each month.  If you qualify, you will usually get the money into your account within two business days.  You also have the option to pay it off earlier if you have the funds to do so.

The Disadvantages:

Unlike Payday loans, installment loans are a little more difficult to qualify for.  In many cases, lenders will look at your credit score and how much money you earn each month.  As payments usually come directly out of your bank account, make sure you have the funds available!  If you don’t have enough in your bank account, your bank will apply overdraft charges.  Some of these loans will let you call in or go to a branch and make payments.

The Similarities & Differences Of Payday and Installment Loans:

  • Payday loans usually range from $100 to $1,000 while installment loans can run into thousands of dollars.
  • Payday loans are short-term while installment loans are paid off over so many months.
  • Payday loans are either paid with a post-dated check or your debit card.  Installment loans automatically come out of your bank account each month.
  • The APR on a payday loan will be over 100%, installment loans range from 25% to 199%.
  • Payday loans are easier to qualify for than installment loans.

Before deciding on either of these loans, ask yourself how much money you need and how long will you need to pay it off.  If you just need a couple of hundred, a payday loan might work best, but some installment loans also offer smaller amounts, so shop around.

Have a plan on how you are going to pay the money back and stick to it.  If you don’t live up to the agreement, your credit score is going to drop significantly.  If you stick to your payments, it can leave a positive mark on your credit score.

 

 

 

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