Before deciding which type of loan is better, one must take into account the situation. Both payday and installment loans for poor credit can be beneficial in different ways, despite recent criticism from advocates for consumers. There are those that are beneficial and legit, and others that have the effect of dragging consumers into a cycling of owed debt.
Payday loans as well as installment loans are often referred to as small-dollar and high-cost loans. This is because they usually carry high interest. That’s because the borrowers are usually low-income, or carry poor credit to no credit. Hence, they are considered subprime borrowers and usually don’t have access to cheaper credit options like credit cards or home equity lines of credit via institutions like credit unions and banks.
Here are some of the differences between payday loans and installment loans so that a potential borrower can make an informed decision.
Payday loans are those that can be anywhere from a hundred dollars to fifteen hundred. They are meant to be short-term and paid back in 30 days or even less. Typically, the pay back is due on the upcoming payday. This is where things get tricky for the consumer as they find themselves short on the next payday, then the next. It’s best to only use this type of loan if extra funds are coming in.
The loan is usually set up by post-dating a check or by automatic withdrawal after the borrower’s paycheck has been deposited into the account used to secure the loan. There is a fee charged, and it’s usually a very high percentage so it’s best they be ready. Further, the loan is unsecured and the lender will take into consideration the borrower’s ability to repay before approving.
If for some reason the borrower can’t pay back the loan will have more fees tacked on and it will be owed in another 2 to 4 weeks.
Installment Loans for Poor Credit
Installment loans for poor credit $150 to thousands of dollars. They carry principal, interest and finance charges to include insurance and fees. All of it is repaid in monthly installments that are fixed and set over a set amount of months. The APR is higher than that listed on the contract usually because of the various types of credit insurance, so that’s something to pay attention to.
Another important note on installment loans for poor credit is that they can be renewed in as little time as every few months with new interest charges, credit insurance and fees. In most cases, the loan amount will reset to the first amount borrowed, and sometimes it’s increased. To secure the loan one will need to use property such as a car, electronic device, firearm, jewelry or other higher priced items. Real estate can’t be used as collateral in installment loans for poor credit.
Using this information, anyone that is looking to decide between either a payday loan or an installment loan for poor credit can make a better decision based on what they need and what they can work with. Both options can work when one is strict with repayment and keeps on top of the terms. It does take a lot of discipline, especially with a payday loan or one may find themselves in that endless cycle of borrowing and repaying.
For those with poor credit, it is a great option and can completely satisfy the immediate need for cash should that circumstance arise. As with any agreement involving money, reading and analyzing the fine print and using a well-known lender is a smart move.