Most people use loans or credit to finance their homes, buy goods, finance emergencies, and more? Though the debt ratio is quite high, it might be tough to make ends meet without a loan. If you need a loan, it would be best to know the different types of loans and which one to consider.
Installment and payday loans are some of the most common personal loans that you can consider when trying to fill up that financial need in your life. Personal loans are a go-to credit option because of their low-interest rates and flexibility.
Let us take a look at an Installment loan vs payday loan so that you can know their difference and which one you should apply for.
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What Are Installment Loans?
Installment loans include several types of loans, such as car loans, mortgages, boat loans, and more. These loans may take a little longer to process, have a longer credit term, and this means that they require credit checks.
What Are Payday Loans?
Technically, payday loans are a type of installment loan. However, they have a shorter payment term, require no credit checks, and have higher interest rates. If you need some quick cash, this is one of the choices that you can consider. These loans are approved instantly, and you will get the money is deposited straight into your bank account.
The Difference Between the Two
With an installment loan, you will get the money you have qualified for upfront. You will then have to pay a fixed amount of money every month. Some lenders give up to five years for a mortgage or three years for a car loan.
Installment loans have very favorable interest rates and terms when compared to payday loans. To determine how much you qualify for, the lender will check:
- Whether you have security or not
- The lender
- Your credit score
If you qualify, installment loans can allow you to borrow up to $100,000. It may be a good idea to talk to a few lenders so that you get the best deal possible.
Payday loans are some of the fastest loans that one can qualify for. They require little documentation, and when applying, you do not have to prove that you can repay the loan.
These are significantly smaller loans and are usually below $1000. The loan is also due on your next payday, hence their name. Lenders will require you to give them access to your bank so that they can withdraw their money once you get paid. You can also choose to write them a post-dated check.
In cases where you are unable to pay back the loan, the lender can allow you to roll it over to your next payday. This will also attract more interest and some late fees. If you have a bad credit history or a low-income earner, this can be a viable option.
Which One Is Better: Installment Loan vs. Payday Loan
The question of which loan is better when it comes to an installment loan vs payday loan depends on which loan you can qualify for. Your choice will also depend on your urgency and ability to repay the loan when needed.
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