Diving into the world of personal loans can get a little murky. There are so many different terms to learn and understand – particularly when it comes to types of personal loans and which one you should choose.
Take, for instance, installment loans and payday loans. What makes them different? Do they have any similarities? Let’s compare the definitions, terms, repayment amounts and more between installment loans and payday loans to help you figure out which one might be best for you.
Installment Loans vs. Payday Loans
The good thing about learning what both installment loans and payday loans are, is that their name pretty much says it all. Installment loans are longer-term loans that you pay back over time in multiple payments (or installments). Payment terms can vary – weekly, bi-weekly, or monthly. Installment loans are usually considered a more traditional style loan.
Payday loans, sometimes called cash advances, are short-term loans that you pay back faster with one payment. Typically, by your next payday, or about two weeks for most of us.
Amount of Loan
Since payday loans are paid back more quickly, they tend to be for relatively smaller amounts of money. You can get a payday loan for as little as $50 or over $1,000 depending on where you live and your income.
Installment loans, on the other hand, can be for larger amounts of money. Since you typically have more time to pay back an installment loan, the smallest lending amount is usually in the hundreds of dollars, while the largest is in the thousands. At some of our LendNation locations, you can also secure a title loan using the title of your car, which gives you access to even more funds – up to $10,000!
The approval process for payday loans and installment loans varies by lender and state. Installment loan amounts are higher and may take longer to apply for and receive approval. That’s not the case with LendNation. You fill out the same application for a payday loan or installment loan. The process is fast and easy with funds deposited in your account quickly. In general, short-term loans are easier to get approval for than traditional loans – you don’t even need a high credit score.
Here’s what you typically need when applying for a loan application at LendNation:
- Current U.S.-issued photo ID
- Verifiable source of income
- Active checking account
- Bank statement from within last 30 days
- Current phone number
Installment loan repayment terms are based on three things: how much you borrowed, the length of the term, and interest rates. Let’s look at an example of an installment loan repayment.
You borrow a $4,000 installment loan and your payback term is 2 years – or 24 months of monthly payments. Each monthly payment is split up by your lender and either goes towards your principal (the original $4,000 loan amount) or the interest accrued (based on your interest rate). The lender’s interest rate would determine how much additional you pay over two years, but your monthly principal payment would be roughly $167 ($4,000 divided by 24), plus interest.
With payday loans, repayment is typically done in a single payment plus the cost of borrowing money. The rates for the loan depend on what state you live in, so be sure to double check your state’s rates to ensure you’re getting the right information. Rates can range from $15 per $100 borrowed and up – but again, it all depends on your state. Check for LendNation rates in your state to learn more.
Regardless of loan type, both installment loans and payday loans come with fees if the loan is not paid back on time. Before you borrow, make sure you can commit to any payment schedules and amounts so you can avoid late fees.
Early Repayment Penalties
Early repayment penalties are just what they sound like: fees for paying off your loan early. Some traditional lenders charge fees because the way lenders make money on loans is interest charged over a specified period of time. If you pay off the loan before then, they are losing out on interest payments. Payday loans rarely have early repayment penalties, but sometimes installment loans do. Be sure to speak with your lender about potential hidden costs like these.
If you get a loan from LendNation, you won’t have to worry about an early repayment fee – you can pay it off any time before your due date. We don’t change early repayment penalties and a lot of our customers take advantage of this benefit.
Cost of the Loan
The cost of an installment loan versus a payday loan really comes down to the amount borrowed and how long you take to pay back the loan. Both loans use interest rates to express costs the of borrowing, specifically, an Annual Percentage Rate (APR).
Whether or not you should get an installment loan or a payday loan comes down to what you need the funds for. If you’re looking at a big-ticket item, an installment loan might be a good choice. If all you need is a little help getting through to the next paycheck, then a payday loan might be a better choice. Either way, LendNation can help you with your lending needs!