Installment Loans vs Payday Loans

Installment Loans vs Payday LoansWondering if you should get an installment loan or a payday loan? The difference is very clear, and most people that have the option will take an installment loan over a payday loan. We tried to come up with some reasons why you’d want to choose a payday loan over an installment loan, but couldn’t.

Most of the time installment loans are much harder to get than a payday loan. A payday lender will loan to just about anyone with a job or some other form of income as long as they have a bank account in order to get the money from. An installment lender is going to be a bit pickier about who they give their money to, since they aren’t getting the larger fees and interest that payday lender does, they have to be sure they get paid back from a reliable borrower.

If you find yourself with the choice between getting an installment loan and getting a payday loan, we suggest the installment option. We always advocate just about any other solution to your financial troubles than going with a payday loan, they’re just that bad.

Installment Loans vs Payday Loans: The Numbers

The reason why the numbers look better with an installment loan is you’re usually given a year or more to pay it off, and for that reason you’re going to get an APR that isn’t through the stratosphere. Payday loan companies are required to state their fees as an APR, even though you’re only getting the money for two weeks or a month at most. That’s why it looks so drastically different, because you’re not getting the money for very long at all.

No Trap Involved with Installments
If you’ve got the time to pay off the loan, and if it’s broken down into affordable monthly payments, the trap is not set the way it is with payday loans. Since payday loans force you to pay back the entire balance, plus the fee, in such a short tie frame, you usually have to take the money out again, and pay the fees all over again, doubling or tripling the amount of money the loan is costing you, and making the fees skyrocket each time you re-loan the same money.

And don’t be fooled, it is the same money. If you borrow $600 to fix your car, and you come back and pay the $600 plus the hefty fee of let’s say $70, but then need to take the money out, it’s by all accounts the same money you just paid back. Now you’ll have to pay another $70 when this new loan is due, bringing your total fees to $140 for the same $600. Keep this up for long and you’ll eventually pay more than $600 to borrow $600 which is ludicrous by any standard.

Compare this with an installment loan and let’s say you take out $600 but you get the money for twelve months at 10% interest. Your total due back would be $660 but it would be broken into 12 monthly installments of $55, which most people could afford to pay without being forced to loan out more money to make ends meet. The only problem is it’s not that easy to find someone to lend you $600 for a year at 10%.

Installment Usually Involves Collateral
If you’re getting installment loans you’ll usually need some form of collateral, even if that simply means your good credit rating. Other popular installment loans are for consumer goods, like the line of credit you’d get at Best Buy. If you don’t pay for your items you bought with their credit they’ll have the right to take them back. Since a payday loan involves no collateral other than your job, they have to collect on your payday so that they’re insured you’ll pay it off.

Installment Loans Win, Hands Down
Overall, you should take an installment loan over a payday loan, because in almost every situation imaginable it’s going to cost you less, and result in less stress and hardship while you pay it back. Unless you’re dealing with an unscrupulous lender that is making your monthly payments too high, or you are getting a really bad interest rate on your installment loan and it’s coming out to costing you more than a payday loan, you should take it.

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