KNOW ABOUT PAYDAY LOANS AND INSTALLMENT LOANS
Installment loans and payday loans are the types of loans normally referred as small dollar and high cost loans. These loan types carry a high rate of interest. This is due to the fact that the borrower usually has a low income and either a poor credit history or no credit history at all. Such borrowers do not have access to cheaper forms of credit like home-equity loans through credit unions or credit cards.
Payday loans have recently become the target of criticism by various consumer advocates and the newer Consumer Financial Protection Bureau. Installment loans have largely been without increased regulatory scrutiny and public attention. However as found by some recent surveys and investigations installment loans can also have a deleterious effect upon the consumers very much similar to payday loans, dragging the borrower into even deeper cycle of debt if they fail to plan their finances before and do not repay the loan on time.
ADVANCE AMERICA OR CHECK INTO CASH OR ACE CASH EXPRESS, ALL ARE PROVIDING PAYDAY LOANS AND INSTALLMENT LOANS
MENTIONED BELOW ARE SOME DIFFERENCES BETWEEN THE TWO TYPES OF LOANS
- These loan types normally provide an amount varying between $100 and $1500.
- These are short term loans and have to be paid back within a 30 day period and in some cases even less. Payment is usually due on or after the receipt of the next paycheque of the borrower.
- Loan can be paid either through a post-dated cheque (given by the borrower to the lender when the loan amount is finalised) or through an automated withdrawal after the paycheque of the borrower has been deposited directly into their bank account.
- Lender can also charge a fee for the loan which can be calculated as an APR or annual percentage rate. A typical payday loan is usually for an amount of $100, which is due in two weeks along with a fee of $15. Such loans carry an APR of around 390%.
- This loan type is unsecured, and the lender has to assess the ability of the borrower to repay the loan depending upon their recent paycheques or salary slips.
- Loan amount is often rolled over completely when the due date arrives and the borrower fails to pay. The borrower then incurs an additional fee along with the original loan amount in two to four weeks.
- The loan amount approved usually vary from several thousand dollars to as low as $150. Interest, principal and other finance charges like the credit insurance premiums, fee etc. is repaid in pre-decided instalments every month. The time duration to repay such a loan is typically six months and goes up to a couple of years.
- APR or the Annual Percentage Rate for such loan ranges from approximately 25% to well above 100%. According to various SEC filings, nearly half of the total funds loaned usually carry APRs between 100% and 50%.
- Effective annual percentage rate or APR is considerably higher than that stated in the loan contract, because of the purchase of certain types of credit insurance, which the lender is not required legally to include in his APR calculations.
- Installment loans can be easily renewed every few months, along with new charging of fees, interest and credit insurance premiums. Such renewals are sometimes accompanied with a small pay-out which represents the principal amount which has been already paid off in the previous instalment. The loan amount is then normally increased or reset to the amount actually borrowed.
- Installment loans are secured through personal property, not including real estate. The collateral may include consumer electronics, cars, firearms, power tools and jewellery (not including wedding rings).
Mentioned below are some pointers which would help you to realise whether you need payday loans or installment loans:
A payday loan is better suited when:
- You need a small amount not more than $1500.
- You would be paying back the loan amount immediately or within 30 days.
- You are in need of cash in order to cover expenses between paycheques.
- You do not want an income or credit verification.
Installment loans are better suited when:
- You require a large sum, ranging to a few thousand dollars.
- You would pay a fixed monthly instalment.
- You want to repay the loan over a longer time period.
- You have no problem with providing income information or credit checks.