Among the most popular loans available today in the UK, payday loans now face stiff competition from instalment loans. While each has benefits, there are some key differences. Before applying for a loan, it is important to know which loan is right for you.
What is a Payday Loan?
Borrowers who qualify for payday loans receive a small amount of cash to tide them over until the end of the month or the date when their next salary is paid. Payday loans provide a short term solution to cash shortfalls.
Who Needs Payday Loans?
Payday loans are issued to people who are 18 years of age or older and have full-time employment. Applicants choose payday loans because they do not want to rely on family or friends for help. Most have a necessity for a small amount of money in-between pay periods.
What is an Installment Loan?
Instalment loans are relatively new. They are issued and then repaid over time. The repayment period can range from two months to one year, depending on the credit status of the borrower. Facing stagnant wages and rising prices, more and more people are struggling to make both ends meet. Many people turn to installment loans to help pay monthly bills like gas or electric as well as other loans like car repairs or other necessities. Some who find themselves consistently in a cycle of financial hardship may, as a result of their situation, opt to renew their instalment loan to stay afloat.
Key Differences Between Payday Loans and Installment Loans?
Payday loans, like the name implies, are normally paid when the borrower receives a salary at the end of the month that the loan was issued in. They are meant to bridge the gap between the times the borrower has run out of cash to the time when they are paid again. Payday loans are small and unsecured. No collateral is required to secure a loan, but high rates of interest are applied.
Instalment loans are repaid across several dates. A specific duration is applied at the time that the loan is issued. Charges for the loan are rolled into the monthly repayment amount.
The Best Choice to Make
People that need a loan with more flexible terms may choose an installment loan. They may not be able to afford to pay off a loan straight away or have finances that are more suitable for multiple repayment terms. Instalment loans also offer larger amounts of cash.