Two Important Short Term Loan Types – Payday Loan & Installment Loan
Short term loans are very useful when an unforeseen condition arises at the end of the month and we are short of money. As the loan is of short term, we can repay it soon, usually on our payday. Though there are many types of a short term loan, two types are the most popular – payday loan and installment loan. Let’s see what the difference between the two is.
Both these loan types come at high interest rates. This is mainly because borrowers of these loan types are usually either in poor income status or have a bad credit history, and so, many of them have no access to consumer credits with cheaper interests like home-equity loans or credit cards, offered by banks or credit card unions. While taking these types of loans you should always approach an honest and transparent lender like PiggyBank.co.uk. This online lender has a calculator of interest, right on their homepage and so, you can see how much you would have to repay even before you borrow. There are no any hidden charges and absolutely transparent transactions.
- Payday loans typically range from £50 to £1,000.
- Payday loan is a short term loan to be repaid in full usually in 30 days or less. Repayment is due on or right after the receipt of the next paycheck of the borrower in ordinary situations.
- Repayment is done usually with a post-dated check (borrower provides it at the time of taking loan) or by electronic withdrawal upon the paycheck of the borrower is deposited directly in their bank account.
- The interest rate can be calculated as an annual percentage rate (APR). A standard payday loan may be for a principal of £100 due in full in two weeks.
- Loan is usually unsecured and the lender evaluates the borrower’s capability to pay it back according to provision to the lender of latest paychecks.
- Loan can be and usually is rolled over when due, if the borrower couldn’t repay it. In that case, borrower is charged extra fees and is entitled to repay the original loan amount in next 2 to 4 weeks.
- The amount of installment loan often ranges from £100 to several thousand pounds. Principal amount, interest and other charges (fees, insurance premiums) are paid off in fixed installments per month, generally more than six months to two years.
- Installment loans may also be available with interest rates as competitive as from 5 to 7 percent.
- Installment loan can be renewed after every few months, with new fees, rates of interest and credit insurance premiums.
- Renewal comes sometimes with a small “payout” signifying some of the principal repaid already in earlier monthly installments. Typically the loan amount is renewed to the original amount or is more.
- Installment loan is normally secured by personal assets, barring real estate. Cars, power tools, consumer electronics, jewelry (except wedding rings) and firearms may come under collateral.
PiggyBank.co.uk advises you to ask yourself a few questions before taking out a short term loan, the most important of which is whether borrowing money is the correct option for you. If, instead, you can cut down on your expenditure or do without buying some items and save the money, do that. If you borrow money to repay other loans, you might be caught in the vicious cycle of loans. Therefore, think twice before taking out loans.