In the sort of emergency in which you need to take out a loan, you may be feeling desperate enough not to worry too much about the nuances of the type of loan you get. But whether it's for unexpected car repairs, a family emergency, or a simple miscalculation in your budget, the type of loan you take out can affect the amount you have to pay back as well as the amount of time you have to pay it back in. So here are three distinctions between installment loans and payday loans.
The amount of interest can vary by loan and by the institution or business you acquire the loan from. However, the interest rates in general are higher for payday loans. For these types of loans, interest is often expressed as APR (annual percentage rate), which helps compare costs better than by looking solely at the interest itself. This is because APR includes other loan fees, helping you to get an overall better feel for what the loan will cost you. Although this APR rate is generally higher for payday loans up-front, installment loans can also end up costing you a lot of money if you aren't careful to pay them back as soon as possible.
2. Loan size
If you're only considering taking out a loan because you're in an emergency situation, it's important to know the options available to you concerning loan size. Taking out an installment loan offers a wider variety of loan sizes, including loans up to several thousand dollars. If you need an amount greater than fifteen hundred before your next paycheck, a payday loan is probably not the right choice for you.
3. Payback methods
Installment loans are so called because they're paid back in installments. This payback method can take years to complete, making it a more long-term type of loan. Paying it back in installments makes sense, considering that it's often a much larger loan than a payday loan and so it could be difficult or impossible to pay it all back at once (without having to take out another loan in order to do it). This is in contrast to payday loans, which are generally expected to be paid back as soon as your next paycheck comes in.
These three crucial differences will help you decide which type of loan is the best for your situation. If you decide on a payday loan, you should limit the amount to what you know you'll be able to pay back next time you get paid; and with an installment loan you'll need to consider what you'll be able to pay back every month on a long-term basis.Share