As soon as unexpected expenses arise, many Americans rely on online cash advances as they do not have the liquid means to cover them. While others may rely on their savings, some events require a much larger sum than what they may hold as excess cash. This is where payday loans or installment loans come in. Both options present reliable and fast cash advances; however, they have different terms and characteristics.
Payday Loans
Payday loans are often regarded as installment loans; they are a smaller amount of cash with much higher interest. These cash advances rely on a post-dated check or access to the borrower’s bank account as a means to guarantee repayment. This option is perfect for sudden unexpected expenses that can be covered with $1,000 or less.
The main issue with this loan is its high interest, and if at any chance the borrower fails to repay the borrowed amount. Some lenders allow rollovers, while others do not. A payday loan rollover simply means that the borrower can extend the date of repayment by paying an additional fee. On the other hand, payday loan annual percentage rates range around 400%, making them a highly costly cash advance option. There are also penalties and service fees combined along with the loan.
Installment Loans
Installment loans encompass all types of loans, from mortgages, car loans, personal loans, etc. Any debt that you are permitted to pay back upon scheduled repayments is an installment loan. The loan’s initial phase is similar to payday loans; you get the cash amount upfront and then have to deal with the repayment. Many installment loans are spread across months and even years of repayment. Many installment cash advance lenders will perform a rather strict credit check paired with a lengthy request method to secure a safe cash transaction. After all, the sum offered is larger than that of a payday loan. Due to its more flexible repayment terms, the interest rate is much lower than any short-term cash advance. This makes it a more favorable option if your emergency should not be met as fast.
What Are the Key Differences?
While the similarities are basic, the differences are more effective to conduct an informed decision.
Loan Amount
Installment loans range from several hundred dollars to a few thousand dollars.
Payday loans range between $500 to $1,000, depending on the lender.
Loan Repayment Term
Installment loans are designed to be repaid in a few months or years.
Payday loans are set to be repaid as soon as your next paycheck comes in.
Annual Percentage Rate
Installment loans’ annual percentage rate starts from 3% to a bit more with unsecured cash advances.
Payday loans’ annual percentage rate starts from 400% to 520% for a simple 2-week cash advance.
Credit Check
Installment loans exhibit a stricter and detailed credit check on their borrowers.
Payday loans lenders only need to make sure of the borrower’s income and other factors that would affect the repayment.
