Payday loans
Payday loans are relatively small amounts of money, usually $100 to $1000 intended to be repaid in the short-term. These loans generally require the loan be repaid when the borrower receives their next paycheck. These types of loans are enticing for people with a less-than-perfect credit history and no options for fast cash. The problem is the annual percentage rate (APR) for these loans is extremely high, the actual rate depends on the state. The repayment amount is significantly higher than the original amount borrowed, which continues to escalate until the loan is paid off in full. For this reason, payday loans are not legal in every state. Consumer advocates and lawmakers are urging consumers to avoid payday loans.
Installment loans
Installment loans are usually fixed rate loans, for larger amounts and for longer terms than payday loans. Installment loans are typically fixed rate loans where the interest rate charged over the term of the loan does not change. In general, they are repaid with regularly scheduled payments or installments, therefore their name. Installment loans are either unsecured or secured loans. Secured loans typically require the item being financed to be “secured” as collateral. This means if payments are not made the item can be repossessed. Some examples of secured loans include auto and mortgage loans.
Unsecured loans are also known as good faith loans or signature loans and do not require collateral or a security deposit. The loan is supported by the borrower’s credit history, income, and in some cases a co-signer, who is someone who pledges to pay the loan back if the borrower cannot. Examples of unsecured loans include student loans, personal loans, and unsecured credit cards.
Some payday loans have recently become repackaged and marketed as installment loans. Before agreeing to any loan, be sure to read through the terms and conditions, clarify the interest rate and prepare a timeframe for when you can realistically pay the loan back, including all fees and interest so that you do not become engulfed in a non-ending situation.
If you have unsecured debt, payday or installment loans and are having a difficult time paying them back reach out to one of our account managers by calling 877.590.1847 Monday through Friday from 9:00-5:30 pm EST or by requesting a free consultation via our online form.
