Consumers have a variety of options available when it comes to taking out loans but, unfortunately, the majority of these options require loan applicants to have good credit. Those who are looking to borrow just a small amount of money and don’t have a perfect credit score do still have a few options at their disposal, though. The most popular loan options are payday loans and installment loans. This article will take a look at some of the differences between them to help readers make a more informed choice.
What They Have in Common
Both payday loans and installment loans are usually available to those who don’t have perfect credit scores. As a result, each of these types of loans may have higher interest rates than loan types like typical auto loans and mortgages. Availability is roughly where the similarities between these loan types stop, though, so read on to find out about some key differences.
Most payday lenders only offer very small loans. Installment loans, on the other hand, range substantially in maximum borrowed amount. Blue Trust Loans offers installment loans of up to $2,000 to qualified borrowers.
Payday loans are short-term loans that usually need to be paid back within 30 days in one lump sum. Installment loans, as the name implies, can be paid back over the course of months in smaller weekly, bi-weekly, or monthly payments depending on the borrower’s pay schedule. Most payday loans are also repaid via a post-dated check, while installment loans can be paid through direct withdrawal or using ordinary checks written each pay period.
The APR on payday loans can be extremely high, sometimes nearing 400%. Installment loans typically have lower interest rates, though it’s important to note that some lenders do calculate interest payments differently depending on applicants’ credit scores.
Still confused about how to decide which type of loan is best? Try to consider things like how much cash will be required to accomplish an immediate financial goal, determine how payments can be made without having to choose between paying the loan and affording food, and check that credit score. Having a better credit score can help readers secure better interest rates on installment loans, and paying these loans off on time can also help borrowers improve their credit ratings.