When you’re in a financial crisis, it can be hard to secure a loan if your credit history is less than satisfactory. Fortunately, bad credit loans exist. This type of loan is for people who have bad credit reports or little to no credit history.
However, bad credit loans usually have higher interest rates than regular loans and greater restrictions since the lenders need to minimize the risk of not being paid back. But they are generally useful when they’re managed responsibly.
Installment loans and payday loans are the two most popular types of unsecured loans among borrowers with bad credit histories, and both of them can help customers in times of financial emergencies. However, there are a lot of differences between these two types of loans, and learning the difference between them can help you quickly decide which one is right for you.
Installment Loans vs Payday Loans
Installment Loans
An installment loan is an umbrella term for different types of loans, such as personal loans, title loans, and mortgages, among others. When applying for installment loans, you receive a lump sum of money upfront and you will have a few years to repay the loans in monthly installments.
Installment loans are the perfect solution for people who have terrible credit scores wanting to deal with financial emergencies. Borrowers can usually get approved for a higher amount and a longer repayment term than regular loans if they are eligible for an installment loan.
Payday Loans
As its name suggested, payday loans are loans that “act” like your paycheck, as many vendors may refer to it as “get paid early.” You can get instant cash without long waits when getting payday loans, in which the cash arrives sooner than your current paycheck. These types of loans are usually short-term loans with no more than one month of repayment periods, meaning that you will have to pay them back once you receive your next paycheck.
To repay payday loans in most cases, borrowers will need to write the lender a postdated check or allow them access to the borrower’s bank account so the lender can withdraw the repayment during their next paycheck.
Although a payday loan is great for securing quick cash on the spot, it can be a problem when you’re unable to pay the lenders back on your next payday. Lenders will let you roll over the already high-interest loan and they’ll also add some late fees as well, making the overall cost of a payday loan higher than any other type of loan.
Here are some of the detailed comparisons between bad credit installment loans and payday loans:
| Installment Loans | Payday Loans | |
| Loan Amount | Typically larger amounts up to $35,000 | Smaller loans, usually less than $5,000 |
| Repayment | Fixed monthly payments ranging from 12 months to 72 months | By the borrower’s next paycheck, usually around 2 weeks |
| APR Rates | Range from 5.99% to 35.99% | 400% - market average |
| Credit Checks | Does a Credit Check | No Hard Credit Check |
| Credit Score Requirements | No Minimum Credit Score Requirement | No Minimum Credit Score Requirement |
| Collateral | No Collateral | No Collateral |
| Effect On Credit Profile | Can help improve credit scores when paid on time | Unlikely to impact credit scores |
| Fees | Origination Fee and Early-payment Penalty | Can also incur fees and penalties |
How To Choose Between Installment Loans and Payday Loans?
If you’re not confident that you can pay back your loan in full by the time your next payday arrives, then it’s better to opt for an installment loan. It even makes more sense if you need a large amount of cash or just a longer repayment period with lower rates.
With payday loans, you can get the funds you need way faster than getting approved for an installment loan, but you will end up having high APRs which can make it difficult and extremely expensive to pay back in time.
When deciding which type of loan to apply, you should always consider your current financial status, your current situation, and your overall needs to assess the necessity of getting a loan. If you need loans urgently to cover emergency expenses like medical bills, payday loans may be a better and faster option. If you need a large amount of money for investments or commercial purposes, an installment loan will suit you better.
Where Should I Get Loans With Bad Credit?
If you need quick cash, the first people you can try approaching are your family and friends, especially if they understand your financial situation. Usually, you won’t have to worry about interest when you borrow money from your relatives.
If that doesn’t work out, there are plenty of other alternatives, such as pawnshops, private lenders, online lenders, and car title collateral loans. Most of these creditors offer secured loan services and they will provide you with around 25% to 50% of the title’s market value. If you failed to repay the loans, you will lose possession of your title.
You can also apply for a loan from an online lender for higher efficiency and less hassle. If you want to get bad credit payday loans among other short-term fast loans, you can visit iPaydayLoans. On the other hand, US Installment Loans is a good site to get bad credit installment loans and other large amount personal loans.