Payday loans have helped millions of Britons with their finances, and they are very popular short-term loans. However, payday loans are now competing with instalment loans.
Payday loan versus instalment loan
A payday loan is a short-term loan that you can take out and repay at the end of the month when you get your salary.
An instalment loan, though a short-term loan, offers borrowers multiple repayments over a fixed period of time. The repayment duration can be anywhere from two months to a year.
When deciding between the two, it is important to understand the differences so that you can be a responsible borrower.
- It is due every 30 days or when you get your salary.
- If you run out of money before your salary is due, it can help you out.
- It is ideal for smaller amounts of cash.
- It is an unsecured loan and does not require any collateral.
- You can repay it through direct debit from your bank account.
- It is a high interest short-term loan.
- It is paid back over several months based on the agreement with the lender.
- The interest and principal amount are paid together in the monthly payment.
- As it takes longer to clear than a payday loan, it is a high-cost short-term loan.
- It lets you borrow more money.
Which is right for you?
The type of short-term loan you opt for depends on your lifestyle and financial circumstances. If you have a full-time job but have a sudden money crunch, a payday loan is the perfect loan for you. It allows you to pay for essentials before your next salary comes in.
If you cannot afford to repay the borrowed sum in one go and multiple repayments fit into your finances, an instalment loan is what you need.