Installment loans for bad credit works pretty much in the same manner as the conventional personal loan, but it has a higher interest rate. You can repay them in a time period of 6 to 36 months and the payment can be made in small and manageable installment forms- which is often done monthly or in 15- days’ schedule.
While you can only get a loan of some hundred dollars in a payday loan, installment loan allows you to borrow thousands of dollars in one go (depending as per the law of your state). However, it is important that you don’t borrow more than the amount you need for your financial help. Installment loans are often taken to pay the bills if they are higher than $500.
It is important to search for an installment lender who can offer you significantly low interest rates in comparison to a payday lender. The reason that they have an amortizing loan allows you to avoid the scavenging debt cycle. Because of it being an amortizing loan, every payment you do is made towards the principal amount and the interest. It means that with every payment you come a step closer to clear all your debt.
One of the downside of the installment loans is that you may end up paying a larger interest amount in comparison to payday loans because of the longer repayment tenure, which makes the interest, pile up. However, the downside is literally of no meaning at all because with an average payday loan, a customer spends around 200 days of their debt yearly and has high amounts to pay per year. So, even if you end up paying a little more interest, with appropriate payment sizes, then you can easily afford it.
The problems of payday loans
You have a number of ways in which installment loans for bad credit differs from payday loans. Payday loans are marked as short term loans with repayment tenure of two week, on an average. Usually they are marked safe with a post-dated check or via an agreement made to the lender that they can debit the amount from the account. On the due date, the complete loan amount along with the interest is deducted from your account.
Though payday may appear to be a good option, and all you need to do is wait for your paycheck, but this isn’t so simple. The reality is a lot more different. Payday loan have an average APR of 391% in comparison to conventional loans. And, a loan repayment is more than 80% of the amount which is quite difficult to afford.
Don’t go for any loan at all
It is important to avoid all types of loans in the first place. Make sure you have some savings to handle unexpected expense. With your emergency savings, you can deal with all financial issues without going for any kind of loan. However, if there is no way out, then rather than going for payday loans pick installment financial loans.