Payday vs installment loans

What Is The Difference Between a Payday Loan and an Installment Loan?

January 26, 2024
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Whether you've been hit with unexpected medical bills, surprise car repairs, or you're looking to grow your small business in an economically sound way, choosing a resource for quick, or even same-day, cash loans can be intimidating.

At Idaho Finance, we want you to feel more confident and more peace of mind after a financial conversation with us. That's why we put effort into our blog entries; we want to cover the topics that are important for someone who needs a cash infusion and who wants to approach the decision with as much knowledge as possible.

We frequently discuss payday loans versus installment loans on our webpage and our other blog entries, and here we will go further in-depth on how the loan repayment and interest rate term structures differ so that you can make the best financial decision for your fiscal future.

Interest Rates and Loan Repayment Structures in Nampa, ID

Two of the most important things to understand when taking out a loan are how interest works and what will be expected of you in terms of loan repayment, depending on the type of loan you access. When discussing personal installment loans and payday advance loans, those differences are significant.

Installment loans and payday loans are two different types of loans with distinct payment and interest rate structures. Here are some key differences:
 
Loan Amounts and Terms:
● Installment Loans: These are typically larger loans that borrowers repay over a fixed period in equal, scheduled installments. (Idaho Finance loans range from $100 - $5000.) The loan term can range from a few months to several years. The "equal, scheduled installment" feature is one that personal installment loan borrowers rely on when getting a loan that they have confidence they can repay on time. At Idaho Finance, we work with our customers to craft a loan payment schedule to fit their budget, and we work with customers with good, bad, or no credit. Installment loans also have incentives for paying off your loan early.

● Payday Loans: These are smaller, short-term loans intended to cover the borrower's expenses until their next payday. They are usually repaid in a lump sum on the borrower's next payday. These short-term loans come with significant fees if you are unable to make the lump sum payment, and they also offer no incentives for paying off the loan early. In fact, some of the more predatory payday lenders actually have early repayment penalties.
 
Payment Structure:
● Installment Loans: Payments are spread out over the loan term, and borrowers make regular, fixed loan payments (installments, hence the name for this loan type) that include both principal and interest. With a balanced payment that always includes payment of both interest (compensation to the lender) and principal (the original amount borrowed), you can rest assured that you are always making progress toward paying off your loan instead of just continuing to line your lender's pockets indefinitely.

● Payday Loans: Payments are usually made in a single lump sum, including the principal amount borrowed and the fees or interest charged. If a payday loan is arranged across more than one payday (at most, two or three pay periods), the payment amounts are almost always designed to barely cover interest and fees until the final lump sum payment. Again, as noted above, there are also serious penalties for missing the lump sum payment date, which can put you in a worse financial condition after your loan than you were before.
 
Interest Rates:
● Installment Loans: Interest rates for installment loans are lower compared to payday loans. The interest is calculated over the entire loan term and is designed to be repayable by the average borrower. Idaho Finance specializes in low-interest personal installment loans for people with a full range of credit histories.

● Payday Loans: Payday loans typically have very high annual percentage rates (APRs, a type of interest rate) and can be much more expensive due to short repayment periods. In addition to high-interest payday loans, payday lenders also tend to have a litany of fees tacked on as well. These fees are non-refundable and, as mentioned above, are not prorated or eliminated if you pay off your loan early. Payday lenders rely on the false idea that they are the only source for fast cash loans (especially for those with less-than-ideal credit), so they think they can charge exorbitant rates to people in need. At Idaho Finance, we prove that there are other options for immediate financial assistance at reasonable, responsible rates to people with all credit histories.

Credit Check:
● Installment Loans: Lenders may conduct a credit check as part of the approval process. Borrowers with better credit histories may qualify for lower interest rates. Regardless of your credit history, Idaho Finance wants to work with you. Additionally, installment loans can be one pathway to improve your credit score. See our previous blog about how to build credit here.

● Payday Loans: Payday lenders often do not require a credit check. Approval is based on the borrower's income and ability to repay the loan from their next paycheck. They do, however, almost always require a checking account to link to the loan, which not all borrowers have. Installment loans may not require a linked checking account. (Idaho Finance does not require a checking account.)

Regulation:
● Installment Loans: These loans are often subject to more comprehensive regulations, and lenders must adhere to state and federal lending laws. Idaho Finance is proud to be licensed by the State of Idaho and willingly compliant with all applicable regulations. The regulations we adhere to ensure that we are among the most reputable personal loan companies and can offer safe in-person and online loans.

● Payday Loans: Payday loans are subject to regulations, but they can be subject to less stringent rules, leading to potential issues related to high fees and interest rates.

It's important for borrowers to carefully consider the terms, costs, and risks associated with both installment loans and payday loans before choosing a lending option. Installment loans are generally considered a more traditional and safer borrowing option, especially for larger amounts and longer-term financial needs. Payday loans, on the other hand, are often associated with higher risks and costs due to their short-term nature and high interest rates.

If you have more questions regarding your lending options in uncertain times, please contact the loan experts at Idaho Finance today. You can reach us by calling (208) 999-LOAN (5626) or contacting us online for more information. We love being a premier resource for low-interest installment loans in and around Nampa, ID, and we'd love to help you get the safe personal loans you need to take debt stress off the table.