When looking for a loan to sort out your pressing financial need, you may find it hard to narrow down your search. You’ll come across different options, with most categorized under payday or installment loans.
So, what exactly are these loans, and which one should you opt for? Let’s look at the main differences between installment loans and payday loans.
What Are Payday Loans?
A payday loan is a short-term loan that you get within 24 hours of applying through various lenders. These loans are given based on your future income; therefore, no credit checks are required to be eligible for this loan.
This type of loan comes with extremely high-interest rates mainly due to its short-term nature therefore; you need to pay off the loan within a few weeks.
What Are Installment Loans?
Installment loans Montreal comprise different types of loans, including auto, home improvement, student, or personal loans. The repayment period for each of these types is different.
Under an installment loan, you will not be required to pay off the entire amount in one go. Instead, you will need to make smaller payments of equal amounts every month until the full balance is cleared.
Most lenders who give these loans need to perform credit checks, and the approval process may take quite a long time. So in most instances, they’re not the best if you need quick cash to handle an emergency.
The Main Differences between Monthly Installment Loans and Payday Loans
The Loan Amount
Payday loans are usually suitable for borrowers who need a small amount of money of, let’s say, $1000. Under these types of loans, your credit history doesn’t matter; what matters is that you show proof of income.
Installment loans are usually intended for larger loan amounts. Since the lender will be checking if your credit history is in good standing, it means you have to have at least a minimum amount of credit already established before you can access the loan.
Under installment loans, you’re required to pay a small amount on a monthly basis. The repayment period can be a minimum of 2 months or can go up to 12 months. However, if you take longer to pay for your loans, you’ll pay more interest rates.
For payday loans, you’re required to clear your loan the moment you get your next paycheck. Otherwise, you’ll be charged for tardiness. Loan tardiness is usually charged with an additional finance charge.
Applying for a payday loan takes a shorter time than you would with most installment loans. What you need during the application process would be your ID or any other form of identification that is required. It’s also good to have proof of income so that you may want a pay slip from your employer.
For installment loans, you’ll need to submit a list of your creditors and their contact details. You can do this through evaluation forms sent to you via the lender.
Installment loans may ask for your bank details and will also need to go through your credit history to check your creditworthiness. All these can take a lot of time, and you have to be patient.
Which One Should You Go For
Whether you opt for a payday or installment loan will all depend on your need. If you need a small loan within a short time, a payday loan is what you should go for. An installment loan is the best option if you need a bigger amount and a longer repayment period.