When you’re in financial stress, finding the right loan can be a difficult task. And if your credit score isn’t all that great, you have fewer options to choose from. This is not to say that there aren’t alternatives.
Today, there is a slew of guaranteed installment loans for bad credit that are available across different platforms. Since a lot of these options are present online, their accessibility is also increasing.
Installment loans are one of the options here, along with payday loans that remain very popular. However, installment loans have more overall value for a number of reasons.
Let’s check them out in a little bit more detail.
What’s the deal with Payday Loans?
A very common choice for people in need of quick cash is – payday loans. They give you a tide-over, which you can repay at the earliest (your next paycheck). But payday loans also come with risks and drawbacks. Some of the risks include:
- Payday loans have a much more exorbitant interest rate compared to other loans (APR beyond 300%).
- They come with fewer credit checks. But this means the repayment doesn’t appear on your credit history either. However, if you default on the debt, lenders can report you, which can hurt your credit score.
- With renewals and additional fees, you can get stuck in a cycle of payday debt. Interest rates can overtake the principal amount in just a few months.
This is where installment loans step in. They offer you more stability, wider options, and flexibility.
Installment Loans: How do they work?
An installment loan is a kind of borrowing where you borrow a specific amount and repay in installments over a period of time.
The repayment usually happens every month and may have increments too. This period can be a few months or even go up to several years.
People typically borrow from $1000 – $10,000 depending on their requirements. But some installments can go up as high as $40,000 with the right credit score and lender.
Why go for Installment Loans?
Installment loans come with advantages that make them a better choice over most other loans.
- Installment loans usually offer higher loan amounts compared to other short-term loans. The loan amount can range from a few thousand to upwards of $10,000.
- They come with much longer repayment periods that work in your favor. You can spread your expenses over the required period so that your financial status remains stable.
- Thanks to the timeframe, you also get lower monthly payments. If you can get a more extended repayment period, it will ensure that each individual payment does not affect your budget too much.
These are some of the apparent advantages that come with installment loans. So, how can they compete with short-term loans like payday loans?
The answer is that they’re a better alternative all in all. Payday loans may offer quick cash, but they come with callous conditions. Installments loans can give you the flexibility to work around your debt in a manageable manner.
Let’s look at how installment loans match up against payday loans.
Installment Loans Vs. Payday Loans
Installment loans cut through the hassles you usually find in payday loans. And in more ways than one!
- Payday loans require you to clear the debt on your very next paycheck. So, lenders would expect your payment within a few weeks at the most. With installment loans, you can slowly clear your debts over multiple paychecks.
- Installment loans aren’t as rigid as payday loans. If you fail to clear your payday debts, lenders can withdraw straight from your checking account. Or worse yet, they can sell your debts to collecting agencies. You risk being sued if you can’t meet these obligations. Installment loans, on the other hand, give you a more flexible timeframe to clear your debts.
- With additional bank fees and renewal fees, payday loans can incur a lot of extra expenses. With installment loans, the interest is comparatively lower.
- Regularly repaying your installment loans have positive footprints on your credit history. And since this repayment happens over a period, your credit score improves too. Payday loans have no such benefits on the credit history front.