So, it happens to the best of us, right? We plan and budget our finances to ensure a safety net for a rainy day, then life happens. We find ourselves in a bind whether it is from an accident, an unexpected hospital bill, or even a home/car repair bill. Though we may have some form of money tucked away in savings, it may not be enough to foot the bill. And that’s where finding the right lending options can come in handy.
If you’re in a rut and want to know the difference between getting a payday loan or installment loan, then let’s go over some benefits and basics of each of these loan types so you can be sure to choose the one that’s right for you.
What is a Payday Loan/Cash Advance?
A payday loan is a small, short term unsecured loan designed to help you quickly get money when you need it before your next pay date. This quick solution allows customers to borrow anything from $50 – $1,000 in some states to give you peace of mind and the financial relief you need to cover an unexpected expense.
Once you’re approved,
Benefits of a Payday Loan/ Cash Advance
Payday loans are a very flexible and reliable short term loan option for many financial emergencies. Some benefits include:
Cost of Using a Payday Loan/ Cash Advance
Payday loan fees vary from state to state. However, if used responsibly, payday loans don’t cost very much at all in comparison to overdraft fees, utility reconnect fees and late payment fees. For example, in Alabama if a customer borrows $100, there will be a finance charge of $17.50, making the amount to repay a total of $117.50. However, if someone were to overdraft for the same amount of $100, there will be an insufficient funds charge of $36 per overdraft occasion regardless of the amount overdrawn and as many as 6 transactions per day. And that is just what the bank will charge you. The merchant you wrote the check to will charge you and additional $30 if the check is returned. (For example, $100 borrowed for 14 days in Alabama will have a finance charge of $17.50, an APR of 456.25%, and $117.50 due on the repayment date).
Learn more about How Much a Payday Loan Cost here.
Applying for a Payday Loan/Cash Advance
Applying for a payday loan can be done in less than 30 minutes if the applicant is prepared with all of the proper documents required by the state regulation and the lender. In addition to having a steady flow of income from either a source of employment or SSI/Retirement benefits, to be considered for approval, one must provide the following documentation:
What is an Installment Loan?
Installment loans are credit based loans that are paid back over a period of time usually anywhere between 3 and 36 months, but may also carry a longer term such as with the 15 or 30 year mortgage loan. The loan limit for installment loans vary from state to state and company to company, but usually start in the hundreds and go up to several thousand dollars (when collateral is involved).
With the installment loan option, a set payment amount is usually due on the same day of every month. The payments combine both your principle and interest charges, so with each payment the balance decreases and the loan is repaid in full at the end of the term.
Benefits of an Installment Loan
Installment loans can be a very attractive option for those who qualify. Some benefits include:
Cost of an Installment Loan
Rates and fees typically vary per loan amount, lender, and credit history. So depending on a number of factors, a typical installment loan customer may see an APR of 5.99% or up to 300%.
Applying for an Installment Loan
In order to be considered for approval, one must provide the following documentation:
As you can see, there are several differences between getting an installment loan vs. payday loan and an installment loan. To recap, we’ve outlined the differences in this snapshot comparison chart below.
Payday Loan | Installment Loan | |
Loan Amount | Typically $50 – $1,000 | Can range from a few hundred up to $100s of thousands |
Term of Loan | Short term 2-4 weeks | Longer term 3 – 36 months |
Costs | State regulated: usually 200 – 500% APR | Credit history driven: usually 6% – 300% APR |
Payment | 1 payment of principle and fee | Multiple payments of principle and interest |
Credit | Based on ability to repay | Based on credit approval |
Best for… | Short term, lower amounts. For consumers who may not have much credit history | Longer term, higher amount. For consumers who have good or bad credit history |
Related articles: Cash Advances vs. Installment Loans in Alabama
For over 20 years, Always Money has been a regional leader in affordable short-term credit solutions. Our rates are very competitive within the industry. With Always Money, you get the cash you need in a minimum amount of time as we have streamlined the process and made it very easy!
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