Access to quick cash can be a lifesaver sometimes. But with so many options available, which should you choose? Installment loans, payday loans, personal loans. Ultimately, the choice depends on what you’re looking for, your time frame, credit score, and even your debt levels.
In the end, installment loans are almost always better options than payday loans. Keep reading to learn why.
Why Should You Get A Small Installment Loan Over A Payday Loan?
An installment loan can do everything a payday loan can do but better. It is not only cheaper, but it can also provide a longer repayment period making payments more affordable. Installment loans are also much larger which means you can cover a bigger expense. For example, an installment loan can help you:
- consolidate your debts
- cover the cost of a significant unexpected expense
- cover home or car repairs
- pay for medical expenses
The Differences Between A Payday Loan And An Installment Loan
It’s important to understand that there is a difference between a payday loan and an installment loan. Do not get the two confused. Yes, they both are loans and must be paid back. However, there are key differences in interest, repayment term and loan amount.
- Payday loans are intended to be short-term and should generally be paid back in full within 30 days. This includes the interest and any other fees.
- An installment loan allows borrowers to qualify for a larger loan amount and is intended to be paid back over a longer period of time, generally up to a year but often longer than that.
- A payday loan is intended to be a quick way to access a small amount of cash, usually between $50 – $1,500.
- An installment loan is a short-term loan that provides small loans of $100 to $35,000. These numbers can easily be higher or lower depending on the lender you choose.
- Payday loans are the most expensive loan on the market. The APR falls well into the hundreds. On average a payday loan will have an APR of 400%.
- Installment loans are much cheaper in comparison with the APR ranging from 5% to 30%.
Borrow Up To $50,000
Pros And Cons Of An Installment Loan Vs. A Payday Loan
When trying to decide between a payday loan and an installment loan there are multiple benefits and drawbacks to consider.
Installment Loan Pros
- Flexible Repayment Options – An installment loan allows you to choose a repayment period and even repayment frequency (monthly, weekly, bi-weekly) that suits your financial situation.
- Low Interest Rates – You can save a lot of money in interest with an installment loan. Rates vary between 3% to 46%.
- Accepts Bad Credit – Many alternative lenders that provide installment loans accept a wide variety of borrowers. As such, even those with bad credit are eligible.
Installment Loan Cons
- Fees – Similar to a payday loan, some installment loans charge origination fees and additional fees.
- Higher Payments – You can often get approved for larger amounts with an installment loan. Though that can be a positive factor, it also means you will be adding a larger amount of debt you must repay.
Payday Loan Pros
- No Credit Check Required – Payday lenders generally don’t require credit checks, making it easy to get approved even if you have bad credit.
- Accepts Alternative Sources Of Income – If you’re unemployed, on maternity or live off of disability benefits, you can still get a payday loan. Many payday lenders accept alternative sources of income including employment insurance, CCB, disability assistance and other government benefits.
Payday Loan Cons
- Small Loan Amounts – If you need to cover rent, utilities, and extra gas money, you may find yourself taking multiple payday loans to cover the expenses.
- High interest – As mentioned above, payday loans have APR that range in the hundreds. Moreover, payday loans are known to trap borrowers in endless cycles of debt.
- Short Repayment Period – Payday loans are generally repaid on your next payday, which is usually between 14 to 30 days. So if you borrow $800, you’ll be expected to pay that entire amount plus interest and fees.
Cost Of A Payday Loan Vs. An Installment Loan
There are a number of factors that can affect the cost of a payday loan and installment loan. This may include the interest rate, term length, loan amount and associated fees.
The interest rates for installment loans are based mainly on your finances and the lender’s policies. However, every province has a specific maximum rate that payday lenders can charge.
For example, here’s how much you could pay for these loans:
|Payday Loan||Installment Loan|
|Interest Rate||$19 per $100* ($285 or 495.3 % APR)||29.99% APR|
|Loan Term||14 days||3 months|
|Payment Amount||Single payment of $1,785 ($1,500 + $285)||3 x payments of $525|
What Do You Need To Get An Installment Loan?
Installment loan requirements vary from lender to lender. Banks often have tougher standards, while some alternative lenders are more lenient, in exchange for charging higher rates. That said, most lenders will require these documents when you apply:
- Proof of Age/Identity – To get any loan, you must be at least the age of majority in your province or territory (18 or 19+). So, lenders will typically request a piece of photo government identification, such as your passport or driver’s license.
- Proof of Residency/Citizenship – You may also need to be a Canadian citizen or permanent resident to qualify for an installment loan. Your lender could ask for a document containing your home address, like a rental agreement or utility bill.
- Proof of Income – Next, lenders will ask for a document that shows your annual income, like a recent pay stub or tax slip. If you’re self-employed or earning other forms of income (government benefits, etc.) you must provide proof of that too.
- Proof of Bank Account – Most lenders also request your bank account details, using a recent bank statement or VOID cheque. This is so they can deposit your installment loan, collect payments and have another way to verify your income.
How To Apply For An Installment Loan?
Applying for an installment loan is easy most of the time. Simply follow these steps:
- Compare Options – Before applying for a loan, be sure to compare rates and terms. You can do so by getting pre-approved. This will allow you to compare multiple loan offers without a hard credit check. You can also utilize loan comparison platforms like Loans Canada to compare products and find the best interest rates and terms possible.
- Apply – Once you know which offer you’d like to accept, simply fill out an application and scan the required documents. Most lenders have user-friendly forms and customer support, so you can ask questions and apply without issue.
- Get Funded – The qualification and approval process can take a few hours to a few days. Once you’re approved, the funds will be deposited into your account on the same date or within a few business days.
Frequently Asked Questions
What are the key differences between an installment loan and a payday loan?
- lower rates
- longer repayment periods
- lets you borrow more
Can you get an installment loan with bad credit?
What type of loans are installment loans?
Looking For A Small Loan?
If so, an installment loan can be a lot safer and cheaper than a payday loan. Just make sure your finances are strong enough to cover all your payments. For more information about installment loans and payday loans in your area, check out Loans Canada today.