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Installment Loans and Payday Loans: How Do They Differ?

Need cash in a hurry? Don’t know where to start? This article discusses the differences between two commonly used forms of financing, both of which are gaining popularity: payday loans and installment loans through Blue Trust Loans.

Term

The repayment term of a payday loan is characterized by its “payback” date (in most cases, a maximum one month). On the contrary, the hallmark of an installment loan lies in the fact that the repayment schedule is made in the medium/long term. This term is usually for periods greater than 60 days.

Amount

Another main difference between payday loans and installment loans is the amount a person can apply for. In the case of payday loans, normally the amount is limited, up to $500, but this all depends on the lender and how much the borrower makes and is willing to pay back. Installment loans tend to be of higher amounts. Although this is an interesting difference, the main difference lies in the term and not in the amount.

Method of payment: single payments vs. installments

With payday loans, the borrower pays back the loan on their next pay date. Although this is the guideline most lenders set, there are instances where a borrower can get a couple extra weeks to pay back the money lent. This is important if a person cannot pay back the funds on the original due date.

Conversely, in the case of installment loans, it is possible to make split installment payments that are distributed on a weekly or monthly basis.

Which option is better?

Both have advantages and disadvantages. When it comes to an installment loan, installments are usually paid back more easily (they are a lesser amount unless the borrower asks for a larger loan), however, people must also worry about fulfilling their obligation to pay each week or month, depending on the date on which the payment is stipulated.

With payday loans, when making a one-time repayment, borrowers can better calculate when they will have to repay the loan. In fact, individuals even have the possibility to pay back the loan before the due date and without penalty.