Think of a payday loan like borrowing a little bit of money from a friend to buy a toy and then giving the friend all the money back the next time you get paid.
An installment loan is like borrowing a bigger amount of money from a bank to buy a bicycle and then paying the bank back a little bit each month until you’ve paid it all back.
A payday loan and an installment loan are both types of loans, but they differ from each other.
A payday loan is a short-term loan that you are supposed to pay back with your next paycheck. This means that you borrow a small amount of money and have to pay it back very quickly, usually within a few weeks.
On the other hand, an installment loan is a loan that you pay back in smaller pieces, or installments, over a longer period.
This means you can borrow more money and don’t have to pay it back all at once as you do with a payday loan. Instead, you make regular payments until the loan is paid off.
An installment loan and a payday loan both have their own benefits and drawbacks.
Benefits of an installment loan:
- Borrow larger amounts of money: With an installment loan, you can borrow more money than with a payday loan.
- Longer repayment period: An installment loan gives you more time to pay back the money you borrowed, usually several months to a few years. This makes the payments more manageable and less stressful.
- Lower interest rates: Interest rates for installment loans are generally lower than for payday loans. This means you will end up paying less in the long run.
- Better for credit score: Making regular, on-time payments on an installment loan can help improve your credit score.
Benefits of a payday loan:
- Quick and easy: Payday loans are often quick and easy to get, making them a convenient option when you need money fast.
- No credit check: Some payday lenders don’t check your credit score, which can be helpful if you have a low credit score.
- No collateral: You don’t have to put up any collateral, like your car or house, to get a payday loan.
It’s important to consider your personal financial situation and the terms of the loan before choosing between a payday loan or an installment loan. In general, an installment loan may be a better choice if you need to borrow a larger amount of money and want more time to pay it back. However, if you need money quickly and have a stable source of income to repay the loan, a payday loan might be a good option.
Would you like to learn more about the benefits of entering the consumer loan industry? As a lender? An investor?