Payday loans are not installments or revolving loans. Payday loans are short-term cash loans that usually come as one lump sum and are repaid at a date agreed upon by you and your lender.
Installment loans are similar to payday loans in that they are also usually paid to your account in one lump sum, but where they differ is, installment loans are repaid in installments over a set period of time – usually a few months or years.
Revolving loans allow the borrower to repeatedly borrow money up to a specific set limit while making monthly payments in installments without applying for a new loan.
Are Payday Loans Installment or Revolving Loans?
Payday loans are not installment loans or revolving loans – they are something else altogether.
Payday Loans are short-term loans, paid into your account by a lender in a lump-sum and get repaid on an agreed upon date, or sometimes in two separate withdrawals.
These types of loans are intended to be purely short-term to cover unexpected bills or emergencies, such as a medical bill, veterinary bill, funeral or car repair bill, or to provide you with a little extra cash to tide you over to your next payday.
If you are looking to apply for a payday loan, you should firstly make sure that you will be able to repay your loan on-time and in full when it is due as you could be hit with additional fees if you are late in making your repayments.
What is Revolving Credit?
A revolving loan allows a borrower to repeatedly borrow money up to a specific set limit while making monthly payments in installments without applying for a new loan.
The borrower can access these funds up to the maximum amount known as your credit limit, and revolving loans are usually issues by a financial institution. It is a standard flexible finance tool due to your ability to repay and re-borrow.
Some people fall into what’s known as the payday loan trap. This means that they can’t pay back the loan when payday comes, so they roll it over. Essentially, they just continue to take the loan out again with additional fees each time and often end up feeling like they can’t escape. However, this is different to revolving credit.
What is an Installment Loan?
An installment loan is when you borrow a set amount of money in a lump sum and make your repayments over a set period of time, usually over several months or years in what are known as ‘monthly installments’.
These types of loans have the advantage of lower interest rates and the flexibility to choose the life of the loan to fit your budget.
Installment loans are often unsecured, meaning you don’t need to put up your car or property as collateral, but some lenders offer secured installment loans, whereby you can use your car or other personal property as collateral which can lower the rate of interest you owe.
What If I Cannot Repay a Payday Loan?
If you are unable to repay your payday loan, this can lead to such things as expensive compounding overdraft fees, collection calls, credit score damage, a possible court summons, and in some extreme cases, even wage garnishment.
Therefore, if you know that you are going to be unable to repay your payday loan when it is due, you should immediately contact your lender who may be able to work out a plan to suit you with minimal stress.
Alternatives to Payday Loans
Borrow Money From Friends or Family
If you are in need of some financial assistance, the first thing to do is to talk to a trusted friend or family member about it, who may agree to loan you some money to help you out your sticky situation.
Friends and family can be tricky to navigate, so you need to ensure that you are comfortable with being indebted to this person and risk the relationship going sour if you don’t uphold your end of the bargain.
Therefore, before agreeing to borrow from a friend or family member, you should set-out a strict repayment plan and terms.
Payday Alternative Loans (PALs)
Credit unions offer Payday Alternative Loans which cost considerably less than a payday loan. You will typically be allowed one to 12 months to repay, and loans can be up to $2000; you have to be a member of the credit union for at least one month, maximum APRs of 28%, and an application fee of no more than $20.
You can receive a maximum of 3 loans within six months. Most PALs don’t require good credit but just the borrower’s income and ability to repay the loan.
Peer-to-peer lending sites connect borrowers directly to lenders who lend to qualified applicants. These lenders are known as investors.
Each site will list the rates, terms, varying minimum and maximum amounts, listed borrower qualifications, fixed interest rates and a streamlined application process.
Borrowers will have a fixed payment, but remember, just as with most financial products, you’ll pay higher interest rates if your credit score is lower.