Find out the difference between payday loans and installment loans: Fees, interest and what the right loan is for you.
If you’re looking for financing, you may be wondering what the right type of loan is for you. Are you in need of a small loan or something larger? What kind of purchase are you looking to make with the loan? And what kind of financial situation are you in? All this will affect your decision.
If you’re on the lookout for immediate finance, you might be considering an installment loan or a payday loan – also referred to as a payday loan. To help you decide which one is the better choice for what you need, we’ve broken down each loan type to help you understand the differences between the two.
- Easy online application
- Quick approval
- Fast funding
- Long repayment terms
OppLoans Installment Loans
Installment loans with competitive rates from a top-rated direct lender.
- Minimum loan amount: $500
- Maximum loan amount: $5,000
- Turnaround time: 1 business day
- Loan term: 9 to 36 months
- Must have direct deposit and meet minimum income requirements
Quick define: payday loans and installment loans
These are small credit solutions of around $100 to $1,000 designed to be repaid in the short-term. These loans can be applied for by people with less-than-perfect credit history and repaid in one lump sum, usually on your next payday. The annual percentage rate (APR) for these loans is quite high, usually in the hundredth percentile, but the actual rate you are offered depends on the state you reside in. Payday loans are not legal in every state.
These loans are for larger amounts and for longer terms than payday loans. Loan amounts range from $1,000 to $100,000 and terms can be from 6 to 60 months (5 years). The payments made to this type of loan are made in installments, hence the name. While installment loans have come to be associated with bad credit borrowers, they can be taken out by those with good or bad credit and are available from banks, standalone lenders or credit unions.
Find out the regulations for payday loans in your state
The key differences
The typical borrower
While every borrower differs, the flexible eligibility criteria attracts borrowers that:
- Have bad credit or no credit history
- Lower-income earners
- Have no bank accounts if they are applying in-branch or at check cashing stores
- Need small loans with a quick turnaround
As with payday loans, there is no “typical” borrower with an installment loan. Borrowers can:
- Have good credit or bad credit, with lenders catering to both
- Be looking to borrow a larger amount and pay off the loan over time
- Want to take out a secured or unsecured loan
Loan amount and terms
- Loan terms and maximum amounts are regulated at a state level
- You can usually borrow between $50 and $1,000
- Terms are normally offered between 7 and 60 days
- This varies greatly between lenders. You can borrow anywhere between $1,000 and $100,000 depending on the lender and your eligibility
- You pay off the loan in installments over a term of between 6 and 60 months (5 years)
How much it will cost
- Payday loans are notoriously costly. Typical APRs reach into the hundredth percentile, but what you will actually pay depends on what state you live in. Remember that payday loans are lent over the short-term, so while APRs are a good representative cost of the loan, you will not pay back that full cost over a year.
- If you cannot pay off the loan within the terms provided, it could lead to refinancing or rolling over the remaining amount. Doing so can incur extra fees and charges.
- Installment loans vary greatly in costs. How much you will pay depends on how good your credit score is, whether the loan is secured or unsecured, what lender you applied with, among other factors. Some lenders will let you get a rate estimate before you apply without it affecting your credit score.