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Installment Loans vs Payday Loans- A Comparative Overview

Differences

Installment Loans vs Payday Loans- A Comparative Overview

Installment Loans vs Payday Loans- A Comparative Overview

There exists a wide range of loans for emergency expenses for any kind of borrower irrespective to previous or current financial status. Mortgage loan, car loan, personal loan, payday loan, consolidated loan, and loan against insurance policies are some examples of popular loan types. No credit check loans have already crushed the prime barrier of bad credit score. Many of these are instalment loans because borrower repays the debt in monthly payments. The payday loan is repaid in one instalment due on the salary date. And, it is the primary difference between instalment and payday loan.

What are the Installment Loans?

An instalment loan is a long-term or short-term unsecured or secured loan. The interest rate is relatively high but not as high as in case of a payday loan. The repayment is made on a predetermined date through the numbered series of repayments or instalments. Most loans including car repair loans, home loans and mortgage loans are instalment loans. The instalment loan can be made available without collateral. Some broker agencies also provide instalment loans to help the first time borrowers; these agencies use their commercial contacts with direct lenders and take a commission on the deal.

Advantages of Installment Loan:

Advantages of Installment Loan

Predictable repayment responsibility every month:

These loans are often provided at a fixed interest rate. Your monthly repayment amount is settled at the time of lending; therefore, monthly instalment remains the same until the last instalment is paid. You better know the paid amount and the balance because of easy to track bank account. The instalment payment can be made automatic by applying the swipe facility to a bank account; on the due date, a fixed amount is transferred to borrower’s account.

Longer term :

These are available for the more extended period. Short-term loans are typically approved up to maximum 12 months while long-term loans may be approved even up to five years.

Easy to pay without fail:

Because of multiple instalments, borrower feels less burden of repayment even with a low wage. Because of a less monthly repayable amount, a borrower can manage to spare the funds after meeting out routine living expenses.

Fast and easy:

Taking a short-term instalment loan is easy and quick as it needs almost no documentation. You get the funds deposited into your account within a couple of days. Some lenders offer doorstep facility also to deliver the cash fast.

Disadvantages of Installment Loans:

Disadvantages

High interest:

The APR of an instalment loan is high. Although it is less than that of a payday loan, still you might pay more than the amount that you would pay with a payday loan. However, secured short-term instalment loans are made available at lower APR.

Any missed payment attracts penalty:

Each failure costs a lot more as it draws heavy penalties.

What is a Payday Loan?

Payday loan or salary loan or payroll loan is an unsecured small amount loan for only for salaried people. The loan is made available just for 28 days or up to forthcoming salary day. The entire loan amount plus interest amount is to be repaid in a single instalment at first payday. The high APR even more than 1000 is the major challenge for the already financially tight borrowers. This small credit is made into a salary account without any collateral. The last couple of years have seen the tremendous growth in demand for payroll loan in the UK.

Advantages of Payday Loans:

Advantages of Payday loan

Very easy and quick to get:

Almost any UK resident with 18 years or above age with a stable job and fixed salary can get a payday loan. No documentation is required.

Fast processing:

To get this fantastic facility, you just need to fill up an application; you get approval within a few minutes. Once you agree to interest rate, APR, terms and conditions, the cash is transferred to bank account.

Convenient for the first-time borrower also:

Most of the FCA regulated payday loan agencies work online to cater to the needs of people in most cities. The customer support is also made available. Extended working hours make it more convenient to apply even after regular office hours.

Extra Option:

The payday loan is right for short-term small amount need. It is an additional option when you have no other opportunity to get quick cash help.

Related: 5 Things You Do Before Applying For A Payday Loan

Disadvantages of Payday Loan

Disadvantages

An expensive option:

The interest rate or APR are known to be the highest.

Scam lenders:

As the borrower willing to get cash help at such a high cost is hurry; therefore, more chances are to be trapped in a scam. Numbers of scam lenders pretend to offer the best-priced deal that seems the lowest in industry.

It can be a long term debt trap:

As the cost is too high, most borrowers fail to repay on time. Even if they do so, they take another loan they meet out the necessary expenses. Investment after loan becomes a long-term trap to keep the borrower with massive debt paying the significant portion of earning interest.

Related: A Brief – Why Payday Loans Are the Best Option

Which Loan Type Is Good For You?

Borrowing is not a difficult task anymore because of the increasing presence of lenders. Borrowing in the UK has become anytime dependable facility because most of the lenders are regulated by FCA. The customer’s interests are well protected by FCA; still, you need to choose the right type of loan to save more and pay easier. An instalment loan is correct if you need large amount but want to repay low each month as instalment; payday loan is useful if you need up to £ 500 or maximum up to £ 1000 for a short period and you are capable of repaying it in one time from the salary. Before taking any of these two think twice about:

  • Do you really need to borrow?
  • Do you have any alternative to borrowing from a private lending agency?
  • How much cash help do you need?
  • How long will you take to repay it?
  • How is the credit rating?
  • Are you able to meet out offered terms and conditions?
  • How does it affect the credit score?
  • Which and how much will be the penalties in case of failure?
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