Last Updated on 14/07/2022 by Deepak Singla
If you need to borrow cash, there are several loan options for you. You can visit banks or credit unions to apply for a loan that suits your needs. Another popular way to borrow money is to go online and look for an online lender.
However, it’s not so easy to get a loan if your credit score is below average, particularly if you’re applying for quick cash loans for emergency purposes. That’s why you need to look for loan products intended for borrowers with not-so-good credit ratings.
Online installment loans and payday loans are two of the best options for such borrowers. But it’s essential to learn about the key differences between these loan types before you send your loan application.
Installment Loans Online: Definition
Accessibility and advantageous repayment structure are two of the reasons why people apply for online installment loans. If you take out an installment loan, you have to repay the principal and interest in installment payments during the loan’s lifespan. A repayment structure like this one is more convenient and manageable to the borrower.
Online installment loans include student loans, home loans, auto loans, and personal loans. Your lender will provide you the money in a lump sum, and you’re required to repay it every month until its maturity date. You can visit this post to read more on online installment loans.
Fixed Interest Rates vs. Variable Interest Rates
When applying for an online installment loan, it’s crucial to consider the type of interest rate. There are two types of interest rates for online installment loans: fixed and variable interest rates.
- An installment loan with a fixed rate of interest means that your periodic payments remain the same until the loan’s end date. The certainty of this interest rate type is beneficial to borrowers because they can budget their payment every month.
- A variable-rate installment loan means that your monthly payments may change during the course of the loan. It’s a good option for risk-takers because there’s a possibility that your interest rate can decrease. But, if you’re unlucky, the interest rate of your loan may also increase.
Secured vs. Unsecured Installment Loans
There are also secured and unsecured installment loans. If you want to know the difference between the two, read on below.
- A secured loan means that you need to provide collateral against the loan. House loans and auto loans are examples of this type. The lending company may seize your home or car if you don’t pay the full amount you’ve borrowed.
- An unsecured installment loan is a non-collateral type of loan. It means that your lender can’t seize any valuable asset you own even if you fail to pay back the required amount. But it won’t be good for your credit profile if you don’t repay the money you owe to the lender.
Requirements for Online Installment Loans
Lenders, particularly banks and credit unions, will check your income and credit score to see if you’re deserving to get an installment loan. If you have an excellent credit score, you can take out a loan with a favorable annual percentage rate (approximately 3 to 6 percent APR).
But there are online lenders that are not so stringent when it comes to credit checks. So, even if you have no credit yet or a poor credit rating, you can still borrow money.
Payday Loans: Definition
Payday loans are the go-to loan option for people with less-than-stellar credit ratings. This loan type comes with a shorter term (around a month or less) and a higher rate of interest (approximately 300 to 400 percent) than an online installment loan.
Lenders that offer payday loans will request loan applicants to issue a post-dated check or access to the borrowers’ bank account. When the maturity date of the loan comes, the lender will convert the check into cash or withdraw the loan amount plus interest from the bank account provided by the borrower
If you’re planning to apply for a payday loan, you should ask the lender about the annual percentage rate. The lender is required by the law to provide you this information. If you know the APR of the loan, you can differentiate it from other lenders and pick the best one for you.
Requirements for Payday Loans
Lending companies that offer payday loans typically don’t look at your credit profile. However, you still have to meet certain requirements. For example, you must be 18 years old and above and have a steady income.
Most states put limits on the payday loan amounts that borrowers can borrow. It’s also prohibited to obtain two or more payday loans simultaneously. In other places, lenders are not allowed to offer payday loans due to high-interest rates.
If your credit score is not that good, and you need to take out a loan, a payday loan or online installment loan is a good option. Know the key differences between the two to choose what’s best for you.