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Earnin Review 2022

We are living in the era of mobile app development. It has already improved a range of sectors. Now mobile app development has a significant influence on financial services. 

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Dave Review 2022

Have you ever made use of an online application for taking a loan? If your experience was successful you are a lucky person! Despite high competition in the field and a wide choice of products, it is difficult to find a company with a top-quality financial app. 

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Brigit Review 2022

Have you ever thought about an occasional paycheck advance? Asking friends or family is not always convenient, so different financial companies can come to our aid. Today we want to do an independent review of Brigit, a platform allowing you to get up to $250 and boost your credit score simultaneously. No credit check or upfront deposit is required!

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Affirm Review 2022

Nearly 40% of Americans have used a “Buy Now, Pay Later” service offered by various financial organizations at least once in their lifetime. So today, we’re sharing an independent Affirm app review, one of the fastest-growing players in this field. 

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Installment Loans vs Payday Loans: Which to Choose?

Unfortunately, many people do not understand the difference between installment and payday loans and cannot determine which financial instrument is better to choose in their circumstances. 

We can all find ourselves in a situation where we need urgent money and don’t have time to analyze our options. That’s why, in this article, we’ve covered all the questions that can help you make the right choice in an emergency: 

In general, both installment and payday loans are short-term credits, but there are a few distinctive features between them, which we are now going to analyze.

Installment Loans

Imagine you want to buy a phone because yours is broken, but you don’t have enough money for it. Then, you realize you have a steady income but can’t give away $1,000 at a time. What will you do? 

The ideal solution to this problem would be to buy the phone and use it now, but pay later – for example, monthly. That way, instead of $1,000 at a time, you’d give $200 plus a small interest of about $5-20 a month and keep it that way for five months. 

Is this possible? 

Yes! And this is what is called an installment loan. This is the type of loan stores offer you when they use the “buy now, pay later” offer. 

It is a short-term loan that can be used for everyday purposes, often not exceeding the amount of $1,000. However, it can also be a long-term loan used, for example, to buy a car – then the amount rises from $1,000 to $100,000, and repayment terms typically become two to seven years.

Your credit score is the biggest problem when you want an installment loan. The higher the amount and the lower the interest rate, the higher your loan profile should be. 

To summarize: 

Pros and Cons of Installment Loans

Installment loans can be a smart solution because of:

In some situations, it’s better not to use installment loans because: 

Payday Loans

Typically, a payday loan is chosen by people who have been denied obtaining installment loans. Most often, this happens if a person cannot prove his capacity to pay or if he has loan history problems. 

Payday loan lenders are more tolerant of risk and willing to give money to many of those who banks have turned down. However, they put a much higher price on their loans for the increased risk. This is why the rates on the payday loan agreement are much higher, and the repayment period is shorter. 

Imagine that your car breaks down, and you urgently need to borrow $300. You understand that you can refund it in a couple of weeks with your first paycheck, but none of your friends or family can lend you that much right now. So in this situation, a payday loan can be a suitable option. 

To summarize:

Pros and Cons of Payday Loans

The advantages of such loans are these: 

At the same time, the disadvantages of a payday loan may be:

Which is Better: Payday Loan or Installment Loan?

To understand which option is best for you, answer the following questions: 

If your answer is “yes” to all these questions, installment loans are the right choice. However, if any of these points do not work for you, you can choose a payday loan because it is easier to get and doesn’t require additional documents or a loan history check. 

However, this is a costly loan, and you pay on average $15 every two weeks. So if you can qualify for an installment loan, you’d better choose it. 

This means that under the deed of agreement, the car or house becomes yours only when the entire loan amount has been paid off, and if you cannot repay the loan, the purchased object becomes the property of the lender without returning any money you have paid back. 

What Are the Risks of Short-Term Loans?

Short-term loans are safe only when you repay them on time. If something goes wrong, many problems will occur.

First, your credit history will be negatively affected if you miss a payment or don’t repay the loan in time. This means you will not be able to get a loan for a long time after the incident.

Secondly, these loans are usually taken out by people who have some kind of problem. Colossal interest rates and extra fees only exacerbate the already complex situation, and you can end up in what is known as a debt trap. 

Third, you need to read the contract with the lender very carefully, as not all of them are honest. Be sure to notice all hidden fees or penalties and verify if you can repay the loan earlier. 

Think twice before taking a short-term loan; if you have at least a slight possibility not to take it, use it. 

Alternatives to Short-Term Loans

If you need emergency cash urgently and are looking for alternatives to short-term loans, consider these options: 

A Local Bank Or Credit Union

If you are a member, contact a representative, explain your situation, and see if you qualify for a personal loan. Usually, local banks give their members much better terms, including loans with no origination fees and 5% APR.

Borrow From Family Or Friends

Of course, they seldom can give you large sums, but they certainly won’t ask for 400% APR. If you are in a challenging situation and realize that you may not get the cash back on time, tell them about it immediately, so you don’t ruin your relationship.  

Emergency Loans

Emergency loans are used to compensate for urgent bills, as the funds appear on your account the same day. Lenders usually charge 6 to 36 percent in interest for an emergency loan. The only problem is that this type of loan requires a loan check. 

Apps Cash Advance

This option is very similar to a payday loan because the conditions for receiving cash, in this case, are minimal. All you need to provide is a stable paycheck, a checking account with direct deposit, and a way to verify employment. However, the interest on such a loan can also be enormous. 

FAQ

A payday loan is an unsecured debt, meaning they don’t require collateral, such as a car or home, for approval. However, you have to know that your next paycheck often guarantees your payday loan. 

No, it doesn’t, though you are still charged interest and sometimes fees for getting a payday loan.

Installment credit is a fixed amount of cash, given to you only if you are to repay it by fixed and scheduled payments. It won’t allow you to borrow the money, spend it and then borrow again as needed; it’s a one-time possibility.