What is the difference between a payday loan and installment loan?
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nandoDave
2 years ago
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
a payday loan is a very short term loan, as its name implies, the lender will expect full repayment when you are next paid (usually within the month).
many borrowers have been caught out on these types of loans as they dont always realise the true cost of borrowing which can often be over 1000% !
an installment loan is a "traditional" loan where the money is repaid over a period of time, typically between 1 and 8 years and the interest rate will be much lower than a payday loan as interest will be charged for longer which means the lender doesnt have to try and make all its profit from the loan in just a month.
often the admin cost of a payday loan can be similar to an installment loan so with each new contract the costs to the borrower are disproportionately high.
its a bit like only putting 2L of fuel in the car at a time, that might be the minimum the pump will dispense but how much do you lose when driving to and from the forecourt and how much is lost by evaporation when you take the filler cap off!
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many borrowers have been caught out on these types of loans as they dont always realise the true cost of borrowing which can often be over 1000% !
an installment loan is a "traditional" loan where the money is repaid over a period of time, typically between 1 and 8 years and the interest rate will be much lower than a payday loan as interest will be charged for longer which means the lender doesnt have to try and make all its profit from the loan in just a month.
often the admin cost of a payday loan can be similar to an installment loan so with each new contract the costs to the borrower are disproportionately high.
its a bit like only putting 2L of fuel in the car at a time, that might be the minimum the pump will dispense but how much do you lose when driving to and from the forecourt and how much is lost by evaporation when you take the filler cap off!
