The significant difference between installment loans and payday loans is that installment loans allow for more time and flexibility of repayment than payday loans, which often have a short repayment time. Payday loans mostly have a repayment period of the next payday, while installment loan repayment is usually spread over some months.
Installment loans
Installment loans are loans taken to be paid in monthly installments. When you take an installment loan, you get a lump sum of the money upfront and a fixed monthly repayment amount, and the repayment period is spread over some months, depending on your agreement with the lender.
Most installment loans have a repayment period between 12 to 84 months or more. Considering the lengthy repayment timeframe, installment loans have fair interest rates. A credit check is required to secure a legitimate installment loan, and the loan processing and funding can take some time, depending on the lender.
Payday Loans
Payday loans are small amount loans that have a short repayment period which is usually the next payday. When you take out a payday loan, you may be required to write a postdated check to the lender to enable them to withdraw the funds on your next payday.
Payday loans have high-interest rates because of the repayment timeframe. The problem with payday loans, aside from the high-interest rate, is that it is sometimes harder to repay, which attracts extra fees and more interest. Securing a payday loan mostly requires a stable source of income, and there may be no credit check.
Conclusion
Having compared the difference between an installment loan and a payday loan, it is clear that installment loans are more favorable in terms of repayment and interest rate.
While payday loans are easier to get, they are harder to pay, and borrowers can get trapped easily. Installment loans can take a little longer, but they are usually considered a better option than payday loans.