What is the difference between an installment loan and a payday loan?

In the world of monetary loans, installment loans and payday loans are the two primary loan types most individuals will explore when in need of financial assistance. What’s the difference between the two, though? Let’s break both down and explore them further.

Installment Loans

An installment loan is typically a short-term, unsecured loan. The interest rate may be high, but certainly not as high as a payday loan. You repay the full amount, plus interest, over a predetermined amount of time. Some advantages of an installment loan include:

1. Predictable payments – You’ll have a fixed interest rate, which means each month you’ll pay the same amount over the entire length of the loan. This allows you to better plan your payments.
2. Longer terms – You have an opportunity to take a longer term to repay the full amount of the loan, if you wish.
3. Quick and easy – When you need quick cash, an installment loan is a simple, quick process that works well for many.

Payday Loans

Payday loans have received a lot of criticism over the years. Consumer advocates and the Consumer Financial Protection Bureau have examined payday loans closely. Such loans often carry high interest rates and are aimed at low-income individuals.

Here’s a bit of information:

1. Payday loan amounts typically range from $100 to $1,500
2. The loan is short-term, meant to be paid in full within 30 days or less.
3. The loan can be repaid via post-dated check or via electronic withdrawal.
4. The lender may charge a fee, calculated as an annual percentage rate.
5. Loans are unsecured, and the lender will assess your ability to repay the full amount based on recent paychecks.