- Payday Loans are a type of short-term loan that come in one payment, and can be repaid in 1 month or in up to 60 months time.
- Installment Loans are also a type of short-term loan but typically are repaid over a slightly longer period of time, and are paid into your account in ‘installments’.
- The main differences between a Payday Loan and an Installment Loan are the way you receive the funds, and the length of repayment.
What is the Difference Between a Payday Loan and an Installment Loan?
The biggest differences between a payday loan and an installment loan are that personal installment loans usually give borrowers more time to repay, are paid over installments and can sometimes carry lower interest rates. But these terms and conditions will largely depend on the specific loan and lender for each type.
An installment loan is sometimes considered to be a good alternative to payday loans. They are usually unsecured personal loans designed for borrowers with varying credit scores. You may be able to get better terms and conditions than you would with a payday loan.
Depending on the lender, you may have a couple of months up to a couple of years to repay an installment loan.
Both are good short-term options for you if you need to cover an emergency bill, or need a little cash to tide you over to your next payday. However, no matter which short-term loan option you go with, it’s very important to make sure you’re capable of repaying it. Never sign for a loan that you’re not 100% sure you can repay on time.
Pros and Cons of Installment Loans vs Payday Loans
Payday Loans – Pros
Easy to access: the most significant advantage for many borrowers is that payday loans are convenient and quick to access. You can apply online in just a few minutes, and money could reach your bank account on the same day.
Lower requirements: unlike loans in banks or building societies, borrowers with poor credit histories and lower incomes are often able to get approved by payday lenders despite the fact that they don’t meet the basic eligibility criteria of banks and other high street institutions.
They are often unsecured: it is possible for borrowers with a poor credit history to get approved for a payday loan without needing to use an asset as security. Banks and other major lenders require borrowers to stake their car, home, or other valuable assets as security in case they can’t repay what they owe, whereas payday lenders offer unsecured borrowing that means you aren not directly putting your personal property at risk.
Payday Loans – Cons
They are expensive: payday loans are sometimes very expensive. Some lenders apply interest rates of up to 1,500% APR, and this can cause the total cost of borrowing to spiral.
You could fall into a debt cycle: Failing to repay your payday loan on time could cause you to enter a debt spiral. This is where you find yourself having to take out another loan to repay your existing finance. Therefore, it is always important to consider how you will pay-back your payday loan before you apply.
Installment Loans – Pros
Spread your payments: with installment loans, you can borrow a large amount of money and spread the payments out over time, which can make them more affordable to repay.
Fixed interest: with installment loans, the interest rate is typically fixed, so you will know exactly how much your monthly payments will be.
You could get better rates with better credit: you may be able to get a lower interest rate if you have good credit, depending on your lenders requirements.
Installment Loans – Cons
Fewer options with poor credit: if you have bad credit, you may not qualify for an installment loan or you may get a higher interest rate. However, our lenders do accommodate for prospective borrowers with all sorts of financial backgrounds and credit histories.
Additional fees for late payments: if you miss a payment or make a late payment, you may be charged a fee and your interest rate could increase. Therefore, before applying, you should make a note of when each repayment is due and ensure that you’ll have enough in your account to repay on-time and in-full.