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What is the main difference between a payday loan and an installment loan?

 Short-term Payday loans are unsecured loans for the financially vulnerable: the low-income, the elderly, and those with limited financial education. Payday lenders don’t do credit checks and, depending on your state’s restrictions, they can’t even check your income first.

Quick money without a credit check? What could hurt

Well, a lot. Payday loans charge unfair interest rates and massive interest rates, which means that they have exceptionally high annual percentages (APRs) that allow you to see the total cost of a loan.

Certified financial educator Maggie Germano says Payday loans are generally very negative for the borrower. Interest rates and fees are increasing and many people cannot pay them on time. Whenever you miss your payment due date, the amount owed increases dramatically. This makes it impossible for people with a paycheck to pay them. This can destroy a borrower’s balance and delete their bank account. It can be tempting to try the fast and risky option with short payment terms but remember: it’s a trap. 

Installment loans: the Lion King of loans

In terms of payment, installment loans are the exact opposite of payday loans. Instead of having to make a large payment in a short period of time, installment loans offer you the possibility of making smaller and regular payments over a much longer period.

Most installment loans offer you a much lower APR than a dangerous payday loan and, unlike many payday loans, do not impose a stealthy prepayment penalty.

 

What is a prepayment penalty? Law professor David Reiss sums it up well: “Prepayment penalties come into play if the borrower repays a loan in whole or in part before the payment schedule, which the borrower and the lender agreed when the loan was first granted. In theory, they compensate the loan Lenders for the cost of granting the loan in the first place and any interest payments that the lender would receive due to early repayment In practice, prepayment penalties can be a new profit center for lenders if interest rates exceed the actual rate. Prepay lost amounts. A good installment lender will also report your payments to the credit bureaus so you can build up your loan and be eligible for a better loan next time.

Which loan is best for you?

If you know with 110% certainty that you can pay off your loan with all interest and fees once it is due, a payday loan can be a viable option. But this is generally not the case. In fact, according to the Office of Financial Consumer Protection, four out of five borrowers are forced to invest again (by extending the term of their loan at the cost of a different set of fees and interest) 1 and borrowers on Average wages owe their lender 200 days a year. So remember that with a payday loan, the odds are never in your favor.

Installment loans are a safer option, especially if you find a lender who is willing to define the terms that apply to you. It is also important that they have good customer service representatives so that you can contact someone in advance if you are concerned about missing a payment. Finally, make sure there are no prepaid fees and report your payments to the credit bureaus so you can get the best loan next time.

 

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Disclaimer: This website does not constitute an offer or solicitation to lend. ExpressCash.com is not a lender and does not make loans or credit decisions. ExpressCash.com provides a connecting service only and is not acting as a representative, agent, or correspondent for any of the lenders we contract with. ExpressCash.com does not charge a service fee. ExpressCash.com does not control and is not responsible for the actions or inactions of any lender. ExpressCash.com does not endorse any particular lender or loan product. You are under no obligation to use ExpressCash.com's service to initiate contact, or request credit with any of the lenders. This service is not available in all states and the service availability and scope are subject to change without notice. Subject to our Privacy Policy, ExpressCash.com will transfer your information to lenders in our program and other service providers and marketing companies with which we do business who may or may not offer payday loans. ExpressCash.com does not guarantee that completing an online form will result in your being connected with a lender, being offered a loan product with satisfactory rates or terms, or a loan product of the requested sum or on the desirable terms, or receiving any approval from a lender in the first place.

Participating lenders may verify your social security number, driver license number, national ID, or any other state or federal identifications and review your information against national databases to include but not limited to Equifax, Transunion, and Experian to determine credit worthiness, credit standing and/or credit capacity. By submitting your information via our online form on this website, you agree to allow any and all participating lenders to verify your information and check your credit. Cash transfer times and terms may vary from lender to lender. Not all the lenders in our network can provide up to $1000. The limits and regulations vary from state to state. We remind that short-term loans are not a long term financial solution.