When you are short of money, quick cash can be of great help. But banks often follow a lengthy procedure. Therefore, many opt for payday loans as they are faster and easily accepted.
However, one major issue with payday loans is that the loan is short-term. You usually have only two weeks to repay the loan in full. Many borrowers cannot afford it and experience rollovers.
Payday loan installments can help in such cases. It adds flexibility and makes the loan more affordable. However, it may come with extra fees and APRs. It’s important to consider both the pros and cons to decide which is ideal for you.
What Are Traditional Payday Loans?
Regular payday loans are short-term schemes. You can use them when you need fast cash. The loan is due to be repaid on your next payday. These loans come with high fees and often lead to more debt.
Lenders do not check your credit scores. Therefore, you have a higher chance of acceptance even when your credit score is poor. But it can make the loan risky for many, as it comes with high interest rates.
You borrow a small amount, but you may end up paying much more. Read the terms thoroughly and always ask in person about their policies. You should know what you are agreeing to and your rights before you sign.
What Are Payday Loan Installments?
Payday loan installments are also short-term loans that allow you to borrow a small amount of money. But it comes with an added benefit. You can repay the loan over time, usually in 2 to 4 installments.
It does not require you to pay all at once. The loan is rather split into smaller parts. You have to make payments each month or week, depending on the agreement. It allows you more time, and the loan becomes more manageable.
Nonetheless, the total cost is still high, and interest adds up fast. Some people find it helpful, while others get stuck in more debt. You must always check the terms and make sure you can afford the payments before signing up.
Differences Between Payday Loan Installments and Traditional Payday Loans
While both schemes share some similarities, they have distinct differences too. Knowing them will help you decide which loan to take. Here are the major differences you need to know about:
1. Loan Amounts
Traditional payday loans offer smaller amounts, usually ranging between $200 and $1000. The lender expects full repayment with fees in one go. While it’s ideal when you need to repay food or other bills, it’s often not enough when you need more money.
Installment payday loans offer more money. You may receive up to $2,000. Bigger loans may help with larger needs. Despite the loan amount being bigger, the process follows the same steps and is easily approved.
2. Repayment Flexibility
You have no flexibility with traditional payday loans. When you sign up for the loan, you will be given a time frame and have to repay the full amount in one go. If you fail, then there will be added charges, penalties, and rollover. All these make it more difficult to repay the loan.
Installment payday loans allow you some flexibility. You will be repaying in smaller amounts. Depending on the lender’s policy and your state’s payday loan approval regulations, you can expect to have 2 – 3 months’ time. Each month, a smaller amount needs to be paid. This makes it easier and more flexible.
3. Interest Rates And Total Cost
Traditional payday loans have higher fees. The annual percentage rate, or APR, is often over 300%. You pay a lot even for small loans.
In comparison, installment payday loans may seem cheaper. But they last longer. So, you may actually be paying more in fees. The total cost for the same amount of money can be higher.
4. Accessibility And Eligibility Criteria
Both loan types are easy to get. Lenders rarely check credit scores. You just need proof of income. Lenders follow a quick method to verify your job and salary. Traditional payday loans are approved fast, and you can expect to get the money the same day.
Installment loans may take a bit longer. But both are still quick. You often apply online or in-store. The requirements for both loans are simple, though they make them risky. Many people use them without understanding the cost. While fast approval can be helpful, you must read the policy in print.
5. Risk Of Rollover Debt
Traditional payday loans often lead to rollover. If you can’t pay on time, lenders offer new terms. You get more time but pay extra fees. This can trap you in a cycle.
Installment loans reduce this risk. You already pay over time. But missing payments still adds late fees. Since you have more time to repay the loan, the risk of rollover here is reduced. It’s important to borrow only the amount you can repay.
Which Option Is Better for Your Wallet?
Both types of payday loans have their pros and cons. While traditional payday loans may be ideal for some, and payday installment loans for others. To decide for you, consider the following aspects.
The Loan Amount
Consider how much money you need. If it’s a small amount that you can repay in one go, then opt for traditional payday loans. This way, you will be paying a lower fee.
On the other hand, when you need a higher amount, then payday installments are better. You can repay in chunks and avoid rollover. But you must not take an extra amount of loan unless it’s necessary.
Your Income
Compare your salary and the loan amount. Can you repay the loan in one, or do you need more time? While doing the calculation, you should not overlook other bills you need to pay.
Legal Aspects
Payday loans have yet to be legalized in all states. The same goes for payday installments. Check your local regulations and see if both options are legally available in your area. Avoid the one that’s illegal or stands in a gray area.
Interest and Fees
You should also consider the APR and fees. While both types of loans have a higher interest rate, traditional payday loans usually have a lower APR. But the short duration of money is also a question. Calculate wisely to make your final call.
Tips for Borrowing Smart with Either Loan Type
Regardless of which option you choose, you need to be careful with either type. Irregular terms and policies often make them predatory. Here are some tips for a smart lending experience:
- Borrow only what you need, not the full offer.
- Always read the loan terms before you sign anything.
- Set reminders to make payments on time each month.
- Avoid rolling over loans to prevent more interest charges
- Check your budget to make sure payments are affordable.
Alternatives to Payday Loans You Should Consider
As both traditional and installment payday loans have their pros and cons, you can consider some alternatives as well. This may help you find even a more suitable option. Here are some of the alternatives you can consider:
- Personal loans from a credit union or local bank
- Payment plans with utility companies or service providers
- Cash advances from credit cards
- Try to borrow it from a friend or family
- Paycheck advance from your employer
- Nonprofit credit counseling services for financial guidance
- Local assistance programs or emergency relief funds
- Side jobs or selling unused items for quick cash
Conclusion
So, both payday loans traditional and installment loans come with benefits and risks. You need to compare them properly and consider your repayment ability and needs. This will help you ultimately decide which is a better and more suitable option for your wallet.
