Is There a Difference Between a Payday Loan and an Instalment Loan?

If you are in a financial position where you think you may need to seek some help with money it can be challenging to wade through the many different options open to you. For some people there is a chance to ask close friends and family members for some help, but it isn’t always practical depending on the amount of money you need to borrow, or you might not have friends and family that can help at all. There are a few different lending streams open to you through commercial finance services and companies, including mortgages and car finance, credit cards and payday loans. Each has its own range of benefits and disadvantages and it is important that you take a look at the options open to you and how they would specifically work for you and your current and future circumstances before making a decision on the route you take.

For many people the choice will come between different types of loan, depending on how much money you wish to borrow. Instalment loans and payday loans are two of the most popular choices of personal loans. There are differences between an instalment loan and a payday loan, although you can apply for both through the same companies in many cases. Let’s look at the differences between a payday loan and an instalment loan.

A payday loan is short-term finance offered by payday loan lenders. There are currently a wave of responsible payday loan lenders in the UK like never before, offering a respectable way to borrow money over a short period of time, alleviating cashflow issues for individuals whilst they wait for the next pay packet to arrive. Usually a payday loan will be between £100 and £1,000 and the loan (and interest) is expected to be paid back in full on the next payday of the applicant. There is a high APR on payday loans when compared with other forms of borrowing but this is due to the fact that they are easier to acquire than other types of credit (with many payday loan lenders offering bad credit loans), and they are due to be paid back over a much shorter period of time.

Payday loans provide applicants with fast access to cash, with funds directly paid into a bank account within 24-hours in most cases. Approval is easier to obtain and it is a convenient online application process that helps those in need of fast financial assistance without having to visit the bank in person.

An instalment loan is similar in that they are short-term loans, but the difference with a payday loan is that they can be paid back within a few months, rather than in one lump sum. For short-term loan lenders this means applicants can choose how long to pay back the loan within, and interest will be added accordingly. Responsible modern lenders will display the full amount, including all interest and fees, based on the length of repayment chosen by the applicant.  Instalment loans are easy to manage, with regular monthly payments taken out by direct debit until the debt is fully covered, and you can borrow a little bit more.

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