What is the difference between Installment loans and Payday loans?
An installment loan is a loan that is repaid over time in fixed monthly payments. An example would be a car loan or a mortgage. A payday loan, on the other hand, is a short-term loan that must be repaid in full on the borrower's next payday. These loans are typically for smaller amounts of money and are often used when people do not have other options.
In terms of interest, a typical mortgage will carry a much higher interest rate than a payday loan would, so it can be seen as more expensive in that regard. However, the fact that an installment loan is paid off over time makes it less expensive when compared to being required to repay the full amount of a payday loan immediately. The amount of interest that you pay on an installment loan is averaged out over the term of the repayment plan, while the high-interest rate for a payday loan is included in the initial amount that you are required to repay.
Another difference between these two types of loans is proof of income. While proof of income is not always required for a payday loan, it is usually necessary to get an installment loan. In addition, you generally need two forms of proof of income in order to get approval for an installment loan. Lenders may also look at your credit history when determining whether or not they will approve a payday loan. Another difference between the two types of loans is the amount of time that you will have to repay the money. An installment loan is generally for a longer period of time than a payday loan would be, which means that you can choose to pay it off in smaller monthly payments.
When choosing between an installment loan and a payday loan, consider whether your goal is to get quick cash or if you want to spread out the payments over time. If you need cash right away, a payday loan may be the better option, but if you have time to wait and want to avoid paying high-interest rates, an installment loan is likely a better choice.