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Payday Versus Installment
So, what do you need, an installment loan or a payday loan? In most cases, an installment loan will be the way to go and if you really do need a loan with a term of 12 months or more, it is the only way to go. This is because a true payday loan is due to be repaid in two weeks or less, on your next payday. 12 month payday loans are really installments. Let’s take a look at what is involved with each type of loan so that you can decide what is right for you.
The much loved and much hated payday loan has been around for years. It is a small dollar loan that is intended to get the borrower through to their next payday. Most loans are therefore due to be repaid in about two weeks. It has a number of advantages and disadvantages that make it good for some uses but certainly not all.
- Easy Qualifying
Payday loans are extremely easy to qualify for with lenders only looking for a few basic requirements. The borrower needs to have a verifiable source of income, proper identification and a checking account. Beyond that, individual lenders might have a few more basic requirements of heir own but credit problems are often ignored. This makes these loans the only real source of credit for some.
- Quick Deposits
Most loans will be deposited into a borrowers account the very next business day. This is perfect for an emergency when you need the money as soon as possible. Do note that deposits are limited by banking hours and weekends and bank holidays can delay deposits.
- Quick Application
Payday loans are quick all around and this also includes the application process. It takes just a minute or two to get a quote for a loan. This is because lenders only really need a bit of information. Basic info like name, address and your source of income.
- Fast Decisions
Because not much information is considered, decisions usually come in a matter of minutes.
- High APR
The effective APR of a payday loan is very high. This is due to two things, the high fees and the short terms. An example of a loan fee might be $15 per $100 borrowed. Not too bad but when you figure the APR by considering the short loan term, this can give you a rate exceeding 400%.
- Short Loan Terms
These loans are due to be repaid on your next payday so if you need a term of 12 months or even a 6 month term, you are out of luck. If you want a term of that length, you need to go to an installment loan.
- Limited Availability
These loans are heavily regulated and are not available in all states. The states that do allow payday loans limit the amount that you can borrow. The amount will vary by state and it could be as high as $1000 or as little as $300, for example.
Now, let’s look into installment loans. These are loans that offer the borrower a lot more options and flexibility. If you need a 12 month payday loan, what you really need is this, an installment loan. Like everything else though, there are pros and cons to everything.
- 12 Month + Terms
You can get much longer terms with an installment loan. 12 months is not a problem and depending on how much you borrow, you can even stretch the loan out longer. In the case of a financial problem or an event that causes you to lose work, the extra time can be very beneficial. The longer term also allows for lower payments which is the next pro.
- Lower Payments
Because the loan is broken up over 12 months or longer, the payment is much lower than that of a payday loan. With a payday loan, you must pay everything all at once which can be a financial burden.
- Lower Interest
In most cases, the interest on an installment loan will be less than that of a payday loan. Do keep in mind though that you will be paying this interest for a longer time because of the longer loan term.
- All Credit Considered
Lenders consider all credit types when making installment loans. You do not need to have perfect credit to qualify. Your credit will have an affect on your interest rate however. The better your credit, the lower your rate will be.
- Interest Accrues
Interest will be accruing from the very first day of the loan. The longer term means that interest will keep adding up for a longer time. This can add up very quickly and make the total cost of the line high.
- 12 Months of Commitment
If you take out a 12 month or longer loan, you will be paying on it for a year or more. This will make it a part of your budget for some time. Be sure that it fits in to your longer term goals.
Is A 12 Month Installment Loan For You?
This is the question that you must ultimately answer and nobody can do it for you. Look at all of the pros and cons and decide if it fits your needs. If you do decide to proceed, here are some more things to consider.
The Installment Loan Terms
Make sure that you read all of the terms and conditions that come with the loan. Your lender should provide all of this information to you with your offer. If you do not understand something, be sure to ask your lender for clarification. Be sure to note the interest and the total cost of the loan. Also, make sure that you know the due date and how your payment can be made. Will it be taken out automatically from your bank account or will you make the payment yourself? Another thing to look for is fees. What is the returned check fee and is there a fee if you pay off the loan before your 12 month term is reached.
Do You Need The Loan Now
If this is an emergency, the answer is obviously going to be yes but there are degrees of emergency. If you can do without a loan, your best option might be to wait. It is always better to not get into debt if you do not need to. In addition, if you have time to wait, you can take the time to review your credit and get everything in order before proceeding. Doing so could increase your credit score and potentially lower your interest rate.
Should You Wait
Sometimes it might be better to wait and improve your credit before you get a loan. In as little as 3 months, you can make big improvements on your credit score by paying your bills on time, disputing false information and perhaps paying some balances down.