Despite their higher rates of interest in comparison to traditional loans, payday loans have their own share of advantages, which aren’t a few. From quick approvals and transfers to funding borrowers with bad credit scores, payday loans serve many 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.
When borrowers are confident about being able to repay them on the due date (on the next consecutive salary day after taking the loan), they can choose payday loans over any other 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. Some lenders now offer short term installment loans to make borrowing convenient. These loans offer the same benefits as payday loans and can be cheaper if you consider monthly payments.
Short term installment loans also have a higher interest rate compared to traditional ones. They’re meant to be repaid in parts over time, offering flexibility that 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:
- One can get debt-free sooner: The term of repayment is shorter. Thus, it is easier for a borrower who can afford to repay a payday loan on his next payday to become debt free sooner than if he chooses to take an installment loan. It is useful for those who need extra money during an emergency. They have run out of funds before an unforeseen event and earn enough to repay the whole amount.
- Improved Credit Rating: If you repay your loan on time, your credit rating also improves. Some people have poor financial history due to tough financial times. They use payday loans to improve their scores once they are in a better place. 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
When you cannot afford to repay your loan all at once, this is a great option. If you have many bills to pay and can squeeze out a bit of your income to be able to repay your loan, then this is a great option. You can repay the loan over a few months. This makes it 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.