The Difference between a Payday Loan and an Installment Loan

So, it happens to the best of us, right? We plan and budget our finances to ensure a safety net for a rainy day, then life happens. We find ourselves in a bind whether it is from an accident, an unexpected hospital bill, or even a home/car repair bill. Though we may have some form of money tucked away in savings, it may not be enough to foot the bill. And that’s where finding the right lending options can come in handy.

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If you’re in a rut and want to know the difference between getting a payday loan or installment loan, then let’s go over some benefits and basics of each of these loan types so you can be sure to choose the one that’s right for you.

What is a Payday Loan/Cash Advance?

A payday loan is a small, short term unsecured loan designed to help you quickly get money when you need it before your next pay date. This quick solution allows customers to borrow anything from $50 – $1,000 in some states to give you peace of mind and the financial relief you need to cover an unexpected expense.

Once you’re approved,

  1. Simply write a personal check for the total loan amount due (No checkbook? Some lenders such as Always Money can print one for you).
  2. Your lender will hold the check until your next payday.
  3. You’ll walk out with cash in your pocket!
  4. Then come back to repay your loan on your next pay day.

 

Benefits of a Payday Loan/ Cash Advance

Payday loans are a very flexible and reliable short term loan option for many financial emergencies. Some benefits include:

  • Easy to apply and qualify – Your credit rating does not affect whether or not you’ll get approved for a payday loan. Most lenders care more about your ability to repay.
  • Fast and convenient – Just bring the required documents (see below), complete a quick application process, and you could walk in and out with the money you need in often less than 30 minutes.
  • Use the money for anything you want! – Some installment loans approved by a bank or offered through in-house financing restrict the borrower from using the loans how they want. With a cash advance, use your loan to catch up on repairs, cover medical costs, take a vacation, or anything you want!

Cost of Using a Payday Loan/ Cash Advance

Payday loan fees vary from state to state. However, if used responsibly, payday loans don’t cost very much at all in comparison to overdraft fees, utility reconnect fees and late payment fees. For example, in Alabama if a customer borrows $100, there will be a finance charge of $17.50, making the amount to repay a total of $117.50. However, if someone were to overdraft for the same amount of $100, there will be an insufficient funds charge of $36 per overdraft occasion regardless of the amount overdrawn and as many as 6 transactions per day.  And that is just what the bank will charge you.  The merchant you wrote the check to will charge you and additional $30 if the check is returned.  (For example, $100 borrowed for 14 days in Alabama will have a finance charge of $17.50, an APR of 456.25%, and $117.50 due on the repayment date).

Learn more about how much a Payday Loan costs here.

Applying for a Payday Loan/Cash Advance

Applying for a payday loan can be done in less than 30 minutes if the applicant is prepared with all of the proper documents required by the state regulation and the lender. In addition to having a steady flow of income from either a source of employment or SSI/Retirement benefits, to be considered for approval, one must provide the following documentation:

  • a valid government issued ID
  • SSN verification
  • proof of address such as a utility bill or lease in your name
  • proof of income such as paystub or award letter
  • proof of bank routing and account number
  • a 30 day statement from your banking institution

 

What is an Installment Loan?

Installment loans are credit based loans that are paid back over a period of time usually anywhere between 3 and 36 months, but may also carry a longer term such as with the 15 or 30 year mortgage loan. The loan limit for installment loans vary from state to state and company to company, but usually start in the hundreds and go up to several thousand dollars (when collateral is involved).

With the installment loan option, a set payment amount is usually due on the same day of every month. The payments combine both your principle and interest charges, so with each payment the balance decreases and the loan is repaid in full at the end of the term.

Benefits of an Installment Loan

Installment loans can be a very attractive option for those who qualify. Some benefits include:

  • Higher loan limit – Both secured and unsecured installment loans have a larger loan limit than cash advances. Although the loan limit varies, for example at Always Money Finance in South Carolina, borrowers may get up to $1,500 with an unsecured installment loan and up to $15,000 with a secured installment loan.
  • More time to repay – Repay your loan in increments usually ranging anywhere between 3 and 36 months. Plus more time to repay means lower monthly payments!
  • Lower and predictable monthly payments – With the installment loan, take back the power in your budget with a predictable monthly payment and peace of mind knowing that the loan will be repaid in full at the end of the term.

Cost of an Installment Loan

Rates and fees typically vary per loan amount, lender, and credit history. So depending on a number of factors, a typical installment loan customer may see an APR of 5.99% or up to 300%.

Applying for an Installment Loan

In order to be considered for approval, one must provide the following documentation:

  • a valid government issued ID
  • SSN verification
  • proof of address (such as a utility bill or lease in your name)
  • proof of income (such as paystub or award letter)
  • a 30 day statement from your banking institution

As you can see, there are several differences between getting a payday loan and an installment loan. To recap, we’ve outlined the differences in this snapshot comparison chart below.

  Payday Loan Installment Loan
Loan Amount Typically $50 – $1,000 Can range from a few hundred up to $100s of thousands
Term of Loan Short term 2-4 weeks Longer term 3 – 36 months
Costs State regulated: usually 200 – 500% APR Credit history driven: usually 6% – 300% APR
Payment 1 payment of principle and fee Multiple payments of principle and interest
Credit Based on ability to repay Based on credit approval
Best for… Short term, lower amounts. For consumers who may not have much credit history Longer term, higher amount. For consumers who have good or bad credit history

 

For over 20 years, Always Money has been a regional leader in affordable short-term credit solutions. Our rates are very competitive within the industry. With Always Money, you get the cash you need in a minimum amount of time as we have streamlined the process and made it very easy! To get started, stop by an Always Money location near you to complete a simple application or call 1-888-618-9217 during normal business hours and you may get pre-approved over the phone!

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