Pretend, just for a second, that something important has come up, and you need money quickly. The transmission on your car fell out, or your mother is stuck at the airport and needs cash for a plane ticket. Payday isn’t for another few days, and you don’t have the luxury of waiting. What do you do? Get a payday loan? That doesn’t sound like a good idea.
If you have good credit, you can just whip out a credit card and solve the problem. But what if you don’t have good credit? What if that card is maxed out? Then what do you do?
Your first thought might be to get a payday loan. But hold that thought… now there are more options for cash advances than payday loans.
Installment loans are starting to become more prominent, which is bad news for payday lenders, but good news for everyone else.
Payday Loan vs. Installment Loan
A payday loan is called “revolving credit” or an “open-ended” loan. Interest accrues rapidly, and keeps building until the loan is paid off in full. One missed payment, or even one late payment, can cause the debt to snowball.
With revolving credit like these kind of loans and credit cards, there is no set timeframe to have it all paid off. The debt can continue to grow and grow over time, and just making the minimum payments. This actually provides an incentive to lenders for you NOT to pay off your debt, because the longer you owe, the larger you owe.
An installment loan is much simpler, more straightforward, way of borrowing money. The principle (amount you borrow) is combined with the interest for the loan. That grand total is divided up into payments that are put on a fixed schedule. That way, when you take out a loan there is nothing left to guesswork – you know how much you owe, when each payment is due, and when the loan will be paid off.
The installment loan, in other words, gives you a road map to repayment. There is nothing “open-ended” or “revolving” about it. With this kind of loan, the borrower has the option of paying the loan off in full at any time, with no penalties or early-payment fees. Unlike a student loan from the government, you can pay early and not be punished for it!
How is a Payday Loan Superior to Installment?
It isn’t. Simply put, there is no aspect of a payday loan that is favorable to an installment loan.
The biggest advantage held by payday loans for so many years is speed. There wasn’t another option for people who wanted or needed cash FAST, and many people borrowed first and asked questions later.
But online installment loans offer the same fast response time as payday loans, taking away the only advantage payday loans had going for them.
No matter how important your reason is for taking out a loan, there is always enough time to protect yourself from a bad deal. Installment loans are safer, more secure, and overall will cost you less than a payday loan.