The Differences Between Payday Loans and Installment Loans
Many Americans have difficulty finding financial stability. Studies show that nearly 58 percent of Americans have less than $1,000 in their bank account. Because of this insufficient fund, they struggle to pay for many expenses, especially unexpected ones like accidents. When you’re trying to make ends meet, applying for payday loans and installment loans can benefit you.
Installment loans and payment loans are similar because they can be considered personal loans. However, there are differences between the two. In this article, we will break down what distinguishes one from the other.
What Makes Payday Loans and Installment Loans Different from Each Other?
Installment loans can be considered an umbrella term that includes car loans, mortgages, and more. They are usually long-term and require credit checks. On the other hand, payday loans have a shorter payment term. The interest rates tend to be high, but a credit check is unnecessary, unlike the former. Nowadays, payday loans are called “short-term installment loans” because there is a stigma associated with the original term.
What makes payday loans different from installment loans? Most of the time, they are just a bit under $1000 and have to be paid on the next payday. If you’re applying for this type of loan, you need to write a post-dated check or allow the lenders access to your account so that they can withdraw the necessary amount once your payday comes.
Although payday loans are an excellent quick fix when you’re trying to make ends meet, it can be troublesome when you can’t pay the lender on time. Every time you’re unable to pay, the interest increases. Lenders often add late fees, too. With this loan, interest accumulates fast. Most borrowers find themselves unable to pay their debt. That is why most financial companies advise against applying for payday loans.
Installment loans come in many forms, but those similar to payday loans are often called personal loans. For this one, borrowers get a lump sum of money upfront. Afterward, they pay a fixed amount every month until the loan is fully repaid. Sometimes it takes a few years to finish paying a car loan, while it might take decades to pay for a mortgage.
Legitimate installment loans in Birmingham, AL will always require a credit check, and the application process is undoubtedly lengthy. But there is a reason why installment loans are better than payday loans. Unlike the latter, installment loans have a lower interest rate, which works in the borrower’s favor.
Payday loans may seem like a good idea because you won’t have to do a credit check, and the payment is short-term. However, the consequences of applying for one outweigh the benefits. If you’re qualified to apply for personal loans in Birmingham, AL, then grab the opportunity. If you’re still interested in getting a payday loan, remember that it would be much better for you to save your money over time rather than find yourself drowning in debt that you can’t repay.
First Finance Company Birmingham specializes in lending and giving financial assistance. We are known for closely attending to the needs of our clients and offering them financial help so that they can have a better quality of life. If you are interested in applying for personal loans in Birmingham, AL, contact us today.