This is for people who want to borrow money on urgent basis- you have this better option called short-term loan. Yes, as the name suggests, short term loan is for people who want to lend money on a very short period of time but are able to repay it within some months itself.
For your better understanding, there are two types of short-term loans- instalment loans and payday loans. Both have a kind of similarity as you can borrow small amount of money on an urgent basis. In both the cases, the lender will decide how much money he can lend (i.e. it can range from $100 to $1000) and only if you meet all their criteria. But yes, the limit will always be lower for a first- time user.
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Now Let us understand the difference between the two, which can help you to choose better:
- The major difference between the two is the repayment days. In Payday loans, the entire amount is repaid in one go within a month (1-35 days). While in Instalment loans, the amount can be paid in small instalments within some months. You can get a buffer of 1-6 months to give the entire amount back. Hence it becomes easy for an individual to repay the money in small instalments.
- Payday Loans are for people who want to borrow small amounts and have a bad credit score. Whereas Instalment loans are for people who want to borrow medium sized amounts and have a good credit score.
- Taking any kind of loan will always include an interest to be paid for it. So, in case of Payday loans, the interest rate will be very high. However, it is said to be balanced due to the duration of the payback. On the other hand, in Instalments loan the interest rate will be average depending on the lender as the payment is spread out over multiple months.
- Lastly it is very important to read the terms well before you buy the loan. In payback loans, it is just one instalment to be paid in a month whereas in instalment loans it is multiple instalments to be paid back within 1-6 months.
Well, it is completely your choice, as to decide which loan method is perfect for you. If you have a smaller amount need, which you can payback easily then payday loan is better for you. However, in case you are in need of a larger amount and you are sure of not able to repay it within a month then instalment loan will be the right choice for you.