Going through a financial crisis? People who live paycheck to paycheck tend to ignore that they might fall prey to emergency cash crunches. What if there is a broken furnace or a medical emergency? You can’t navigate such situations with talks alone. You require money no matter what.
In such situations, borrowing money from friends, relatives, employers, banks, and credit cards seems ideal for getting financial assistance. However, people with low credit have limited options to choose from. And asking friends or relatives might be embarrassing. Isn’t it? However, the experts at MoneyMagpie believe that one can always manage its finances with some responsible decisions, such as opting for Online Installment Loans or Payday Loans.
But as they say, “Know before you owe.” Let’s help you understand the difference between the two.
Online Installment loan vs. Payday loan: Here’s what you need to know
From the first repayment to all the terms and conditions, these two loans have less in common than you think.
If you opt for Online Installment loans, you must repay the loan regularly, and that’s usually monthly. Many times credit checks can be conducted for installment loan applicants. But, don’t worry, if you have a bad or less credit, the chances of disqualification are minimal. The approval process is different for every borrower, and it might change depending on the situation.
On the other hand, even the payday loan doesn’t require a sterling credit score. But the terms and conditions are much more stringent than online installment loans. Instead of paying the due balance over several months, it is paid in a lump sum whenever you get your paycheck (hence the term “payday”). They also often come with higher interest rates than credit cards.
Now that you have got an overview of both the loan types, there are other grounds to cover:
- Credit check for both are totally different
As mentioned before, there will likely be a credit check for online installment loans, and your rate and terms can depend on your creditworthiness. Although paying your due balance on time definitely improves your credit score for the future.
Whereas your payday loan application might not involve a credit check, but it could be denied if you don’t meet the lender’s requirements. The loan might also not get approved if you don’t have a steady job, the source of income is too low, you’ve recently bounced a check, or in the case of declared bankruptcy.
- The interest rates of both might surprise you.
However, the interest rate might vary from lender to lender, but the basics remain the same.
Payday loan lenders usually charge extremely high-interest levels that can range up to 500% in APR (Annual Percentage yield). Most states have banking laws that limit interest charges to less than approximately 35%. However, payday lenders fall under exemptions that could give them the liberty to charge higher interests.
On the other hand, some installment loans, such as private or student loans, allow the borrower to choose between fixed and variable interest rates. The financial experts do not recommend choosing the variable interest rates to avoid the potential rate increases in the future.
The bottom line is:
It is always chaotic when it comes to managing your financial crisis. But thanks to Online Installment loan and Payday loan, it is much easier and user friendly. Now you know what to do when those nasty bills and repairs surprise you. Bridge the gap between your paychecks and manage your finances like a pro!
