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If you’re looking to take out a payday loan, one of the most important things is to make sure you know exactly what kind of loan you’re getting. Most borrowers just don’t realize: is a payday loan installment or revolving? You should learn that a payday loan is neither installment loan nor a revolving loan.
This article will explain what installment and revolving loans are and how each differs.
An installment loan is a type of loan with multiple payments. An installment loan can be paid off over a specific repayment period set by the loan agreement. Examples of installment loans are secured or unsecured personal loans which are typically used for large purchases, like cars or homes.
A revolving loan allows a borrower to repeatedly borrow money up to a specific set limit while making monthly payments in installments without applying for a new loan. Compared to an installment loan, revolving loans don’t have a fixed number of monthly payments. They are called “revolving” because the borrower can repay some or all of their loan at any point during their lifetime.
A payday loan is a short-term loan with high-interest rates from a payday lender. You get the money in your account with minimum documents, no credit check and online. But you have to pay it back, usually within two or four weeks (on the due date or your next payday).
When borrowing both installment loans and payday loans, you typically need to be employed, have an active checking account and payment history, and be 18 or older.
The payday lender might send your debt to collection agencies. Then you’ll have to pay more penalty fees and additional costs. If you don’t repay the debt while it is in collections, the collection agency might try to sue you to get what you owe. To avoid collection actions, try talking to the loan manager or financial advisor.
If you’re looking for a way to get quick cash, here are some options that may be less costly and more sustainable than payday loans:
Instead of taking out a payday loan, you can borrow money from friends and family, but be aware that borrowing from them can be a slippery slope. If you don’t pay them back, your relationship with that person could be damaged forever.
Secured credit cards are revolving credit and require an upfront deposit (usually anywhere from $200 to $500 as credit limit). The upside of these revolving loans is that the money you put down can be used to pay off your purchases if you don’t have enough cash.
PALs are designed to help people who have had trouble getting traditional loans and need to borrow money in an emergency. They’re also an option if conventional lenders have turned you down because of your credit score or income. A payday alternative loan has a more extended repayment plan.
Instead of payday loans, you can choose cash advance apps. A cash advance is a loan product you borrow against your credit limit through the use of your credit card within an app. Cash advances should only be used for emergencies due to the cash advance fee and high APR. In most cases, these loans range from $100 to $1,000 and have a repayment period of two weeks or less.
The best alternative to payday loans is peer-to-peer (P2P) lending. The idea behind P2P lending is that you can borrow money from other people (not banks or credit unions). You’ll make monthly payments, just like a conventional loan.
Pawn shops will loan you money at 12% – 240% as interest and allow you to repay the loan in installments over time. There’s no set time limit for this type of loan, but there may be limits on how much money you can borrow. Compared to unsecured payday loans, pawn shops require collateral to secure the loan.
As you already found out, payday loans are typically short-term loans that are intended to be paid back in full on the borrower’s next payday. While some payday lenders may allow borrowers to renew or rollover their loans, this can often result in additional fees and interest charges that can quickly add up.
Although some lenders may offer payday alternative loans, which are designed to be paid back over a longer period of time in multiple payments, these loans often make you pay higher interest rates and expensive compounding overdraft fees compared to traditional installment loans.
Overall, it’s important for you, as a regular borrower, to carefully consider your options and fully understand the terms and costs. In many cases, alternative forms of credit, such as personal loans or credit cards, may be a better choice for those needing quick cash.
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.