When consumers find themselves strapped for cash, they may turn to a short-term loan for quick relief. Payday loans and installment loans are two common types of short-term loans that a majority of borrowers are able to qualify for, regardless of their credit history. These two types of loans offer distinct advantages and disadvantages, and the best choice of loan will depend on the borrower’s circumstances and needs.
Definition Of A Payday Loan
A payday loan is a small loan, usually between $100 and $1500, although some states cap them at $500 or prohibit them altogether. A payday loan is so named because it is secured by the borrower’s next paycheck. This means the loan will come due as soon as the borrower gets paid.
Advantages Of A Payday Loan
Payday loans are fast and easy to get. Usually, the borrower can get cash on the same day that he or she applies for the loan, and lenders are lenient regarding credit history. The main requirement is proof of employment and a paycheck that will cover the cost of the loan.
Disadvantages Of A Payday Loan
The biggest disadvantage of a payday loan is the expense. Payday lenders charge high interest rates and fees, and some customers get caught in a cycle of debt, having to take out new loans to pay bills after paying off a previous loan.
Definition Of An Installment Loan
An installment loan is a short-term loan that is extended over several months. Borrowers are typically given a payment plan that matches their own pay schedule. Some installment loans must be secured by some form of collateral, such as a house or car title, while other loans are unsecured.
Advantages Of An Installment Loan
Installment loans are often preferred by customers who need to borrow a larger amount of money since many lenders offer installment loans of up to $2000. Many also consider it an advantage to be able to make smaller, predictable payments over a longer period of time. Like payday loans, installment loans are also fast and easy to qualify for.
Disadvantages Of An Installment Loan
Direct lenders like Blue Trust Loans also charge high interest rates along with additional fees for late payments. Customers should plan carefully to make sure they can afford the payments before taking out an installment loan. Fortunately, most lenders allow customers to pay back the loan amount in full at any time and reduce the finance charges.
Choosing Between The Two
In general, payday loans are a good option for borrowers who need a small amount of cash for a short period of time. A payday loan can cover an unexpected, emergency expense. Customers who need to borrow a larger amount of money and can’t afford to pay it back all at once may consider an installment loan from a company like Blue Trust Loans.