For emergency funds, you can choose short term loan options like payday or installment loans. Both have fewer similarities ranging from loan terms to repayment provisions than you think.
Payday loans
Payday loans don’t need excellent credit history but the stipulations are extremely stringent. Borrowers have to repay in a lump sum by the next payday [salary day]. People with bad credit can visit Loan Pig. It is one of the best payday loans online providers with simple pricing as well as a simple and transparent process. You can borrow amounts ranging from £50 to £1500 for the short term.
Pros
- Accessibility ease – Unlike traditional loans, payday loans are easily accessible online. Within minutes, you can apply and on the same day, funds are transferred to your account.
- Less rigorous – Many borrowers choose payday loans because acceptance criteria are less rigorous than other lending alternatives. Unlike banks, short term loan providers generally approve loan applications from borrowers with low incomes and poor credit history.
- No credit checks – Borrowers with bad credit scores can gain approval for payday loans. Generally, there is no credit history check for a payday loan.
- Unsecured loan – For a payday loan, there is no need for collateral. Therefore the interest rates are high. It offsets the costs if borrowers fail to repay.
Installment loans
Installment loans are referred to as personal loans. It can include car loans, mortgages, boat loans, etc. Borrowers gain lump sum funds upfront. They have to make a monthly payment of a fixed amount during the loan duration. The duration of the loan lasts on the type. A mortgage loan lasts for 30 years, a car loan for 3 years, and a personal loan for one year.
Pros
- High loan limits – You can borrow more than £40,000 if the lender’s requirement criteria are fulfilled.
- Helps build credit – An installment loan helps to build a borrower having a credit score less than average but you need to pay the installments on time. with a good credit score, you can gain better interest rates.
- Fixed repayment – The repayment amount and date to pay for the entire duration are fixed. The lenders cannot make changes to your monthly installment unless you need loan restructuring.
- Early repayment – You can repay the installment loan in full, whenever you find it affordable without incurring extra fees. Nevertheless, discuss this with the lender before you make early repayments.
Payday vs. installment loans
- Loan amounts – The installment loan amount is high [£40,000], while the payday loan is smaller [£1500].
- Annual Percentage Rates – The APR for installment loans is lower than Payday loans, which are often in triple digits.
- Credit checks – For installment loans, a credit score is checked during the application assessment. In payday loans, the creditworthiness requirements are low.
- Repayment duration – Payday loans must be paid with the next paycheck. Installment loans are paid across some months or years.
Which is better – Payday or installment loans?
An installment loan is better than payday loans if your credit history allows it. If the amount is large then you will need a long repayment duration with low installments. Short-term loans carry high-interest rates and can quickly increase your debt balance making the loan more costly and hard to pay back.