Despite their higher rates of interest in comparison to traditional loans, payday loans have their own share of advantages, which aren’t just a few. From quick approvals and transfers to funding borrowers with bad credit scores, payday loans serve a number of purposes for different borrowers, depending on their needs. However, the one drawback about them is their fixed repayment term which can get stressful for some.
Undoubtedly, payday loans can be chosen over any other loan when one is confident about being able to repay them on the due date (on the next consecutive salary day of the borrower after taking the loan). Most of the time, lenders may not even offer amounts that are too high in comparison to one’s income and provide only as much as one is said to be capable of repaying. While ignoring the credit ratings of their borrowers, payday loan lenders offer funding to anybody who has a stable income, which is a huge relief to those who can’t get funded by traditional lenders due to their undesirable financial history.
However, due to the fact that one has to repay a payday loan in lump-sum on a specified date, a lot of people find it unaffordable, which is why they either choose to opt out of taking a payday loan or fear falling prey to a debt cycle. In order to make it as convenient as possible, some lenders now offer short term installment loans, which provide the same benefits as a payday loan does and in a way work out cheaper than the latter if monthly payments are to be taken into account.
Short term installment loans also have a higher rate of interest in comparison to traditional ones, but due to the fact that they’re meant to be repaid in parts over time, they offer flexibility which payday loans don’t. Now one may wonder how a payday loan benefits anybody after these short term installment loans came into existence.
How Payday Loans are better than Installment Loans
There are two reasons why a payday loan is chosen over short term installment loans by a few people:
1) One can get debt-free sooner: Since the term of repayment is shorter, it is easier for a borrower who can afford to repay a payday loan on his next payday, become debt free sooner than if he chooses to take an installment loan. It is typically useful for those who need extra money during an emergency due to running out of funds before an unforeseen event takes place, but earn enough to be able to repay the amount in whole.
2) Improved Credit Rating: If you repay your loan on time, your credit rating also improves. Some people who have a poor financial history due to tough financial times in the past, make use of payday loans in order to improve their scores once they are in a better place financially. This helps them get better offerings in the future from traditional as well as direct lenders.
When One Should Choose an Installment Loan over a Payday Loan
1) When you cannot afford to repay your loan all at once: If you have a lot of bills to pay and can just squeeze out a bit of your income in order to be able to repay your loan, then this is a great option. Since it allows you to repay your loan over a few months, it works out to be more affordable than a payday loan, when you look at your monthly expenditure. This reduces the stress of repaying a loan since on a monthly basis, it adds up to almost nothing. A lot of borrowers find this kind of loan to be a better option than a typical payday one.
Before you decide to apply for a short term loan, it is good to know your options and figure out which one suits you best. If you need a more affordable option then opting for an installment loan from your direct lender, can be a good idea for you.