Payday Loans vs Installment Loans – What Is the Difference?
There are many types of loans: payday loans, personal loans, student loans, installment loans, and others. So, if you were planning to get yours at MicroPaydayLoans.com, you are probably wondering what makes them different from each other.
To get the right type of loan that suits your needs, you must know the differences between the distinct kinds of loans. Thankfully for you, this article contains the information you’re looking for, so let’s begin!
One difference to look for between installment loans and payday loans is the way they’re repaid. For instance, payday loans require you to pay them off by the next payday. To do that, you have to either grant the lender the access to your checking account to take the money or write a check to the lender in advance for the loan amount. If it’s impossible for you to repay the loan by that time, you can renew the loan. However, this could lead to an endless debt cycle.
At the same time, you repay installments over time. You, as a borrower, will work with the lender to ensure that the proposed monthly loan payments are manageable and reasonable. Every month, you will reduce the principal and interest until the whole loan is repaid.
With payday loans, it’s easier to obtain them because a credit check isn’t required. If you can’t pay the loan off on time, it will be renewed at atrocious interest rates. You may also be able to ask for a repayment extension plan accompanied by excessive finance fees and charges.
When it comes to installment loans, a lender will evaluate your ability to repay it before funding it. Although having a poor credit is not a requirement for obtaining a loan, the lender may use a formula to calculate whether you will be able to repay the loan.
Given payday loans don’t require a credit check, they are usually approved instantly. So, if you have an emergency, it will be easier to get a payday loan.
Conversely, installment loans may take within 24 hours to be approved, that if you have the right documents required by the lender.
In some states, online payday loans are illegal. One reason may be the fact that some payday lenders use tactics to fool people into taking out loans they can’t afford, after which they charge high-interest rates.
Installment loans are licensed, and they are legal.
- Credit Score Impact
Considering some people can’t pay off their payday loan by the next paycheck, this could cause some damage to the credit score. If you ask for an extension, it will prevent the loan from going to default but will increase the amount of fees and interest due. The increasing amount of debt will decrease your credit score.
Meanwhile, installment loan lenders report the data to credit bureaus. If you pay the monthly installments on time every month, the credit score can be increased over time.
Whereas they are both loans, payday loans and installment loans have differences that you should take into consideration. Now that you are aware of them, you can choose the one that fits your needs the most.