Most people know what it’s like to need money fast: An unexpected car repair. A bill that’s due before payday. Spending money for a vacation. A payday installment loan could be the solution to get the money you need before your next paycheck.
Keep reading to learn how payday installment loans work, how they differ from traditional payday loans, and how to decide if they’re right for you. We’ll also go over alternative types of loans if an installment loan isn’t the best option for you.
The first thing to know about payday installment loans is that they’re not the same as traditional payday loans.
Both types generally offer short-term loans for borrowers. Payday loans don’t usually require a credit check, which can be appealing if you’re struggling with bad credit.
Additionally, payday loan products are available from direct lenders. This means you don’t have to go through a traditional financial institution—like a bank—to get a loan.
The application process is often short and simple. Depending on your lender, you may be able to fill out an online application or apply at a store location.
However, the similarities between traditional payday loans and installment loans often end there. Let’s take a look at how these loans are different.
Borrow up to $500, pay back in installments.
Traditional payday loans are small-dollar personal loans with short repayment terms. You generally repay the full amount of your payday loan using your next paycheck. That makes the repayment period only a few weeks long.
Although payday loans don’t require a credit check, they won’t help your credit history either. Most payday lenders don’t report your payment to the credit bureaus.
Of course, a payday loan could still hurt your credit. If you don’t pay back your loan, your lender might send it to collections. Once in collections, your unpaid debt will likely show up on your credit report.
Payday loans have a reputation for being predatory—for good reason. Traditional payday lenders often use questionable tactics to get you to sign up for a loan. If you can’t afford to pay the loan back on your next payday, your lender might encourage you to roll the loan into a new one.
A payday loan rollover takes your existing loan balance and adds it to a new loan. The new loan is due in an additional two weeks and often comes with additional fees.
Unlike traditional payday loans, installment loans are often much more borrower-friendly. A payday installment loan is a short-term, small-dollar loan with fixed monthly payments.
Installment loans don’t make you repay your loan in a lump sum in a couple of weeks. Instead, you’ll repay your loan over a period of time.
This makes it much less likely you won’t be able to pay back your loan on your due date. Breaking the loan into installments stops the process of rolling the old loan into a new one.
Installment loans also tend to have a lot fewer fees than traditional payday loans.
Take Possible for example. They let you borrow up to $500 almost instantly with no credit check and no late fees. You’ll pay the loan back in four installments. You can even change your due date if you can’t make your payment, all in their easy-to-use app.
The best part? Installment loans can help you build credit. Generally, installment payments are reported to the major credit bureaus. As you make on-time payments, your credit report shows positive payment history—a major factor in your credit score.
Installment loans are often a good alternative to traditional payday loans when you need money quickly.
However, it’s always a good idea to read disclosures and loan agreement documents before filling out a loan application.
Before you sign up for a payday installment loan, be sure to consider the loan’s requirements as well as the pros and cons of getting a loan.
While most installment payday loans won’t require good credit for approval, you’ll still have to meet eligibility requirements.
Common requirements include:
Like all credit accounts, installment loans come with advantages and disadvantages. Knowing the benefits and drawbacks of a loan can help you decide if it’s a good fit for your financial needs.
Not sure if a payday installment loan is right for you? Some other financial services and products can help you get quick access to cash.
Check out some of these payday loan alternatives.
Credit cards are one of the easiest ways to borrow money quickly. Instead of waiting for loan funds, you simply pay with your credit card. Then, you pay your credit card issuer back at the end of your billing cycle.
If you have poor credit, your credit card eligibility may be limited. Luckily, there are credit-building credit cards. These cards could help you get the money you need to cover expenses and potentially build your credit history.
The downside to credit cards, however, is the ability to easily overspend and get into debt. In addition, credit cards often have high interest rates which can cost you a lot of extra money.
A salary or payday advance is a type of short-term loan that helps you get your paycheck early. Like a payday loan, you repay the money you borrowed on your next payday.
Some payday advances are just traditional payday loans using a different name. However, some employers offer salary advances for employees.
You’ll need to check if your employer offers a salary advance loan option. It’s also important to think about how asking for an advance could affect your work environment.
For example, some employers only allow advances in extreme circumstances. Or, you might only be able to ask for one advance over a period of time.
A personal line of credit is a little like a credit card mixed with a personal loan. It’s a type of revolving credit like a credit card. That means you get access to your credit limit as you pay off your balance.
For example, you have a $5,000 line of credit. You can withdraw funds as needed up to the limit. You decide to borrow $1,000 from your credit line. You still have $4,000 worth of credit to borrow. You’ll start accruing interest on the $1,000 you borrowed and make monthly payments to pay it back.
Some personal finance banking apps are making it easier to get your paycheck early. Depending on your banking app and employer, you might be eligible to get paid a couple of days early.
Personal finance apps might also offer a cash advance option with no credit check, interest, or fees. Be aware, however, that these advances are usually for smaller dollar amounts than installment loans. You’ll also have to be a member of the app to use the service.
You have options to get cash when you need it. Be prepared for a financial emergency by learning the requirements for a payday installment loan today.
This gives you a better chance of choosing the right loan if you find yourself with a sudden expense.