Are Payday Loans The Same As Installment And Revolving Loans?
Have you been hit by a financial emergency in recent times and you’re out of cash? Maybe you are short on your rent, out of groceries or you need to pay your medical bills and your paycheck is yet to arrive. One way to get out of an unfortunate situation like this is to borrow money from a payday loan provider.
Of course, there are plenty of other payday loan alternatives that you can consider as well. Before taking the next step and applying for personal loans, you should understand what payday loans are, the requirements for these types of loans, and whether or not you’re getting an installment loan or a revolving loan.
What Type of Loan Is a Payday Loan?
A payday loan is a type of short-term loan that you take out to cover your immediate cash needs ahead of your next paycheck. Payday loans usually come at a high-interest rate and you can only get a small amount of money at once because most states have a cap on how much you can borrow.
The main advantage of this type of loan is that the lender usually does not consider your credit score to determine your qualification for the loan. Unlike banks and other conventional institutions, your credit score does not affect your chances of getting a long.
As long as you have a steady income, you can get a payday loan regardless of your credit score. You can go apply for a payday loan directly or apply through a broker like AdvanceSOS that connects you with direct lenders near you.
What Is the Difference Between a Payday Loan and an Installment Loan?
Payday loans are typically short term loans. In most cases, you get between 14 to 31 days to repay the entire loan amount. An installment loan is characterized by the possibility of repaying back the loan amount over a longer duration. With an installment loan, you can pay back your loan over a set period (usually months or even years).
The loan will be given to you as a lump sum and you’re to repay an agreed amount monthly. Since the loan duration is longer, installment loans often come at a lower interest rate and offer a large loan amount compared to regular payday loans. This helps you avoid a tricky payday loan trap which occurs quite often to many people that apply for unsecured personal loans.
Do Payday Loans Require Collateral?
A payday loan is a type of unsecured loan. Unlike secured loans that require you to submit an asset as collateral, you can get a loan from a payday lender without one. Car loans are the most common type of secured loans. Both payday loans and secured loans don’t consider your credit score. With a payday loan, having a source of income qualifies you for a loan, while with a secured loan, your asset is the most important factor.
What Kind of Loans Are Installment Loans?
Installment loans refer to a broad category of personal loans that are meant to be repaid on a long-term basis. Unlike short term loans, when you apply for this type of loan, the loan provider gives you a lump sum of money upfront which is meant to be repaid as fixed monthly payments over the agreed duration of the loan.
Depending on the original loan amount and the agreement with the lender, it may take months or years to repay this type of loan. Since they have a more flexible loan term and they do not have a high interest rate, it’s easier to avoid a payday loan trap with this type of loan.
What Types Of Loans Are Revolving?
A revolving loan is a type of flexible credit facility that allows a borrower to repeatedly borrow money up to a specific credit limit while making monthly payment to the loan provider. With a revolving loan, you do not need to apply for a new loan. Instead, the lender allows you to access the funds you need up to a maximum amount (your credit limit). Credit card loans and personal lines of credit are common examples of revolving loans.
So Is a Payday Loan Revolving or Installment?
A Payday loan is not the same as an installment or revolving loan. Payday loans are short-term money loans that are meant to be repaid within a short period. Usually, you’ll be required to pay back the entire loan amount as a single payment on an agreed date (typically when you get your next paycheck) instead of monthly payments. However, some payday lenders may allow you to spread out your repayment over a longer duration.
Amanda is a senior financial copywriter at AdvanceSOS. Amanda has been writing about finance since 2015. She graduated with a Master’s in finance from the University of Oklahoma. As a result, she has a wealth of experience and knowledge to share with her readers.