Paying off Payday Loans with Installments

Payday loans can typically be difficult to pay back for a variety of reasons. Paying off payday loans with installments can make paying payday loans off much easier. 

Payday Loans

In the world of personal finances, loans are one of the single most used financial products that millions of people use every single year. Loans can help you to buy your house, your next car, or to help make ends meet if there is an unexpected cost or an emergency payment. Loans can come in many different amounts and can be used for many different things. Because of the many things loans are used for, there are many different types of loans. Say you need a cash advance before you get your paycheck. One such loan that can help with that is a payday loan. 

A payday loan is a loan that is typically less than $500. They are loans that usually must be paid back within a week or two or by your next ‘payday’ hence the name ‘payday loan.’ If you have a bad credit score, these are some of the only loans you might have access too as these are some of the few lenders that lend to borrowers with bad credit scores. 

The payday loan industry is an industry that is well known for its predatory practices. By predatory practices, we mean that many payday loan lenders have been in trouble by the law for practices meant to harm their customers. For example, many payday lenders try to push their customers even further into debt so that they must take out even more debt to pay off their old debt. This has caused many people to be greatly harmed financially, so much so that payday loans are banned in some states like New York. 

Overall, payday loans tend to be harmful to customers. Payday loan lenders require customers to pay back their loans very quickly and charge very high APRs (Annual Percentage Rate), both of which make the payment for the loans harder to pay off. If the borrower cannot pay off the payday loan, they might have to take out another loan or default on their loan, which will ruin their credit score even further. 

What Does Paying Off Payday Loans with Installment Mean?

Since paying payday loans the normal way can be hard to pay off, being able to make installment payments for your payday loan can make it much easier to pay your debt off. 

Typical loans like mortgages, auto loans, and other larger personal loans are installment loans. This means that the loan principal, as well as the interest, are paid off in equal installments that are paid weekly, monthly, or quarterly depending on your loan terms. Instead of having to pay off your entire loan amount plus interest all by your next payday like you have to with payday loans, you can pay your loan off with smaller, much easier to make payments over time. This is why paying off payday loans with installments is much easier than paying off payday loans the typical way. 

For example, let’s say you are taking out $500 worth of debt from a payday lender. If you were paying it off normally, you would likely have to pay the original $500 you borrowed from the online lender as well as roughly $75-$100 or more in interest. You would need to pay all of this back within a week or two. See how this can be a problem? If you are normally struggling to make ends meet without having a debt over your head, trying to make ends meet while also trying to completely pay off your debt can extremely stressful and burdensome. 

Instead of this, you can instead pay it off with installment loans. Instead of paying the $500 and $100 or so in interest in a week or two, you can split up the payments over the course of 4 or more payments depending on your teams. Obviously, making payments of $150 or so a week is much easier than paying $500 plus interest back in one week. This is why paying off payday loans with installments is much better than the traditional method. 

Paying Off Payday Loans with Installments Pros and Cons

Because there are so many types of loans, loan amounts, and so many different lenders, it can be difficult to know exactly where to turn if you are in need of cash. Because of this, it is important to be well informed about every type of loan so you can make the best financing decision for you. Debt is something that should be taken seriously so it’s important you do your homework!

We already went over many of the benefits of paying loans off in installments and how they outweigh typical payday loans, but let’s look at the other side as well. Let’s take a look at both the pros and cons of paying off payday loans with installments!

Pros 

• Get paid now, pay it off later: One of the best parts about paying off your debt with installments is that you can have access to the money you need without having to immediately worry about paying it off. While you still need to worry about having to make each loan payment when it is due, it is much less stressful than paying it all in a week or two. With installments, you can use the money you need without having to worry about immediately having to turn right around and pay it all back. 

• Easier to pay off: As we explained easier, paying off your loan amounts and interest with installment loans is much easier to do than paying it off with traditional methods. To reiterate, typical payday loans require you to pay back the loan principal and the interest all within a week or so. If you get a loan for a few hundred dollars, you can see how it would be difficult to turn right around and pay it back. With an installment payday loan, you pay the loan off in (usually) equal payments. The loan principal and interest are split up and you know exactly how much to pay and when to pay it. 

• Can build credit score: Typical payday loans don’t build your credit score, and this is a huge problem. As we mentioned before, some of the only loans that people with poor credit scores can get are payday loans. However, even if they pay off these difficult loans their credit scores do not increase at all. Their scores will only drop if they fail to make a payment. In reality, loans that people with bad credit history get should be the loans that help your credit score the most! Building credit if you have a poor credit score is a complete catch 22. You need good credit to get loans that build your credit, but if you have bad credit you can’t get a loan that builds your credit! Thankfully, some payday installment loans can build your credit. While not a payday lender, lenders like Possible offer online installment loans of the same size that build your credit when you pay them back! 

Cons

• Paying it off for longer: Let’s face it; no one likes debt. While taking out a loan or some other type of debt can be very helpful and in some situations can be even necessary, no one likes to have debt. Debt is a big dark cloud that hangs over your head and takes money out of your bank account until it is finally paid off. It can be stressful to deal with and to budget for debt. One of the only few benefits of payday loans is that they are paid off quickly. Within a week or two, your debt is paid off and the weight is lifted off of your shoulders. Paying with installments means that while it’s easier to pay off, you spend more time paying the debt off. This means more time with that dark cloud hanging over your head and more time where you need to stress over paying off the debt. If you are someone that seriously doesn’t like to have debt for a long time, a payday loan could be your best option. 

• Can cost more in interest: While there is a good chance you are paying the same amount with a payday installment loan than a typical payday loan, there is a chance that you could end up paying more interest with an installment loan. Because you are paying the loan over a longer period of time, your lender may charge high interest rates on the loan. This may make your loan slightly more expensive if this is the case. However, even if it ends up being slightly more expensive it will still likely be easier to pay off than a normal payday loan. If you have the choice between the two, weigh your options and decide which one you think is best for you.

• Prepayment penalties: Both normal payday loans as well as installment loan payday loan lenders may penalize you for paying your loan off early. While it sounds ridiculous, this is true. You can actually pay a penalty if you have the money to pay off your loan early and decide that you no longer want to worry about your payday loan debt. Since payday loans that are paid off in installments have more time before they need to be paid off, there is a higher likelihood that you will try to pay off the loan amount before the loan is over, there is a higher likelihood you will have prepayment penalties with these types of loans. If it comes to it, decide if you want to continue to have debt or want to pay a small fee to completely pay off the debt early. 

Alternative Ways to Pay Off Payday Loans

There is a chance that you are unable to pay off your payday loan with installments. In that case, you will need to look for other ways to pay off your payday loan so that you do not miss any payments and hurt your credit score as a result. Let’s look at some alternative ways to pay off your payday loans so you know you have options if you are in trouble!

Ask for an Extended Payment Plan

An extended payment plan, or an EPP for short, is a plan that you and your lender can come up with to make your repayment plan easier by extending your payments to some extent. Here are some dos and don'ts for asking your payday lender for an EPP: 

• DON’T wait until the day before your payment is due to ask for an EPP
• DON’T come unprepared when saying why you need an EPP
• DO consider having a financial counselor negotiate on your behalf
• DO check if your state requires payday lenders to offer EPPs. 

Overall, an EPP can really help you to pay off your loan. Make sure you ask your lender nicely and be considerate when asking to have the best chance of your lender giving you an EPP.

Ask a Friend or Family Member

While it may be uncomfortable to ask, your family and friends are a great resource if you ever get into a pinch financially and are unable to pay off your payday loans.  

Lending from your family and friends can have certain benefits that you won’t find at institutions. For example, your friends or family members might be much more flexible about paying them back than another lender might be.

They might give you much more time to pay off the loan and they also may charge a much lower interest rate, if they charge an interest rate at all. Loaning from your friends and family does not relieve any obligations you have.

Your friends or family members still need to be sure you will pay them back. They may have you enter into a loan contract to ensure your repayment term. 

Loans from family and friends can be much more manageable but, of course, you run the risk of permanently damaging your relationship with them if you cannot pay them back. 

Debt Consolidation 

While it may sound counterintuitive, taking out more debt to pay off your current payday loan may actually be a smart move and could save you money as well. With debt consolidation, you are essentially getting a larger loan to pay off your current debts.

If you have multiple debts to worry about, you can pay off many at the same time with a consolidation loan. You then only have to worry about one loan. If you can consolidate your loan with a loan that has a lower interest rate or is easier to pay off, you could be saving yourself a lot of money and a lot of unnecessary stress by consolidating your loans.