Unexpected events happen in life all the time and many of these situations require cash.
Your refrigerator stops running and you have a costly bill to pay. Your electric bill is twice as high as usual and the list goes on and on. When things like this occur, you might run short on cash.
So, what can you do when this happens?
You could turn to a lender who offers installment loans and payday loans. Learning the differences with an installment loan vs payday loan is a vital step to take before you choose one, though.
If you need cash and are interested in these options, here are some essential details that will help you understand the similarities of these and the differences.
The Similarities Between an Installment Loan vs Payday Loan
To begin understanding the differences between installment loans and payday loans, you should know what the similarities are. Here are three ways these loans are similar.
1. They Are Loans
Both of these products are loans. If you need money, you can access cash through either type and end up with the same result – cash in your hand.
2. They Have Fees
A second similarity is that both of these have fees. There are many types of loans you can apply for and almost every option has costs.
While some loan types might have more substantial or costly fees, others might have fewer or lower charges. All loans have costs of some kind, though.
3. They Offer Fast Cash
The third similarity is that both options provide a way to get cash fast. You can use either loan type to acquire money quickly.
The Differences Between an Installment Loan vs Payday Loan
You can see that there are a few things these loans have in common. There is more, however, that is different about both of them as well! Here are six traits that make installment loans distinct from payday loans.
1. The Way You Repay Them
The first difference is the way you must repay each type. With a payday loan, you borrow the money and repay it all at once. When you repay it, you pay the balance in full, including any fees you still owe.
An installment loan is something you repay with payments. When you borrow the money, you receive all of it. You must then make equal payments on the debt until you pay it off in full.
You must repay the full balance you borrowed, plus any extra charges, but you do not pay it all at once.
2. The Amount of Time You Have to Repay Them
Next, there is a difference in the duration of each loan. A payday loan typically has a shorter due date. When you receive the proceeds, you must usually repay it within two to four weeks.
The lender might base the due date on your paycheck schedule or you might get a set amount of time from the loan date to pay off the balance. You will have a specific date, though, that tells you when you must pay off the balance.
If you cannot pay off a payday loan by its due date, you can ask for an extension on it. It’s rare for lenders to extend installment loans, but it’s common for them to extend payday loans.
3. The Dollar Amount
Another primary difference is the amount of money you can borrow through each option. Payday loans, in general, offer smaller amounts than installment loans.
If you need to borrow over $1,000, you might be better off applying for an installment loan. If you need less than this amount, a payday loan is ideal.
Additionally, the way people use the proceeds can vary. People generally seek payday loans to get by for a few weeks. Typically, this occurs when people have unexpected expenses pop up out of nowhere.
People who take installment loans generally have a specific purpose for the proceeds. They might use it to buy something expensive or to pay off other debts.
4. The Interest Rate
Interest rates vary a lot, but it is more typical to find higher rates on payday loans compared to installment loans!
5. The Conditions for Approval
It’s also vital to know that there are distinctions with the conditions you must meet to qualify.
When you apply for a payday loan, it’s unusual for a lender to run your credit. Lenders that offer payday loans do not use credit scores in the approval process. People who use take payday loans often choose them for this reason.
You will likely need good credit to qualify for an installment loan, though. Lenders that offer these run credit checks and screen applicants in other ways, too.
6. The Requirement for Collateral
There is one last difference to learn and this one involves collateral. Collateral describes offering an asset to a lender in exchange for a loan. The asset might be a car, jewelry, or electronics.
For a payday loan, you will never need collateral. You may, however, need it for an installment loan. There are installment loans that require collateral, as well as those that don’t.
Where You Can Turn When You Need Cash Fast
Understanding the difference between an installment loan vs payday loan can help you know which option to pursue when you need to borrow money.
Here at Captain Cash, we offer short-term loans to help you get through tough financial situations.
If you are interested in applying for one, you can fill out an online application or give us a call.