People hear the term “loan” and think that the only difference between any two loans is the amount of money borrowed, and maybe the interest rates customers get. The truth is that there are many different kinds of loans out there and each has its own quirks and features. Two of the main types are installment and payday loans. Explore the difference between installment loans and payday loans, and learn the pitfalls to avoid, so you don’t get into a credit hole you can’t escape.
Installment Loans vs. Payday Loans
Mortgages, car loans, personal loans, consolidation loans and the like are generally referred to as “installment loans,” which allow you to make regular payments, slowly whittling down the debt.
Another type of loan is the payday loan, which is a small quick influx of cash intended to get you through until your next payday (hence the name). These are often due in a single lump sum. That’s not the only way they are distinct from other kinds of loan, however.
About the Payday Loan
Payday loans are usually granted through loan agencies that specialize in these kinds of lending. Over the past two decades or so, the number of these facilities has skyrocketed and they seem to be on every corner of every city.
A payday loan will carry a high interest rate and fees, but doesn’t require any collateral or usually any credit check. You do, however, have to prove you have a job and you put your next paycheck up as security against the loan. When you get paid, you must pay back the loan in its entirety plus fees and interest.
While these loans are easy and convenient, they’re very expensive and the fees you accrue if you can’t repay the loan in full can quickly lead you into a cycle of debt that it’s very difficult to break.
About the Installment Loan
Any loan that allows you to pay it back in multiple regular payments (installments) is an installment loan. These types of loan are repaid on schedule, usually monthly, with set payments. They apply to both secured (mortgages, car loans) and unsecured (personal) loans. They offer a predictable, budget-friendly means to pay back and can be extended over longer terms. The APR will be lower and the available funds higher.
On the down side, these kinds of loan usually require a credit check, and they might require collateral — that is, property to secure the loan. If you don’t pay, you lose the property.
Which Is Best for You?
Only you know what kind of loan will best fit your needs, but calling on the services of a respected and qualified loan agency can be a great first step. A lender like Koster’s Cash Loans in Las Vegas can talk you through the process, examine your needs, and help you to make the right choice to take care of your financial needs and budget.
If you’re in a position to take out a loan for any reason, we can help. Give us a call to get started today!