There are certain things you should know when comparing an installment loan vs payday loan. You can check out our guide here to learn more.
Sometimes, it feels like getting out of a tough financial situation can be nigh impossible. Maybe you’ve discovered that your current job won’t pay the bills and you need to move up and find a better job to better support you and your family.
But to move up in your industry, you need to undergo an expensive training that your company won’t pay for. But you’re strapped for cash, so you can’t pay for it yourself and move up.
Enter loan options. In this article, we’ll explain the differences between an installment loan vs payday loan so that you can decide which of these loan options is right for your financial predicament.
What’s an Installment Loan?
Let’s first look at an installment loan and understand the options within this category of loan.
An installment loan essentially functions in the same way as any other loan that you may have taken out previously on your car (auto loan) or your house (mortgage). You borrow a lump sum of money, which is usable as discretionary funds immediately. An interest rate is charged on the loan, and you pay down the loan in set monthly or weekly installments over time.
There are a few different types of installment loans. The first type is an unsecured loan. With an unsecured loan, you don’t put up any kind of collateral against the loan. Thus, interest rates may be higher and you’ll almost certainly have a hard credit inquiry on your credit report.
If you do choose to put up collateral against the loan, you may well be able to secure a lower interest rate that can work out in your favor.
What’s a Payday Loan?
The payday loan has a few key differences from the installment loan. Firstly, payday loans are typically for much smaller sums than an installment loan. You borrow the sum, and then you pay it all back in one fell swoop with a set amount of interest.
When you get a payday loan, you typically submit a post-dated check. The idea here is that you don’t have the money right now to pay the loan, but you will when payday comes around. Thus, you submit a check that can be cashed when payday occurs (hence the term “payday loan”).
Payday loan interest rates have viciously high APRs, but because you are supposed to pay it back all in one lump sum within a short period of time you won’t feel those negative effects. The payday loan application can be an entirely online process.
Installment Loan vs Payday Loan: Which Loan Option is Right for You?
Now that you know the differences in the installment loan vs payday loan battle, you should be far better informed as to which loan option is the right one for you and your current financial situation. Let us know which one you go to within the comments below!
For more financial advice, be sure to check out the rest of the articles available on the website!