When there is an immediate need for cash, not everyone has a savings or emergency fund that they can fall back on. Some might use a credit card cash advance, but this isn’t an option for everyone either, and it’s time to look into your borrowing options.
Installment loans or payday loans are options many will consider if their credit score isn’t excellent and the bank can’t help.
Since there are a few options for the types of loan that you can get, and where you might find them. If you have a good credit score of 720 or more, the bank might be an option. Some assume banks are your best option, but when it comes to banks vs online lenders many find that the online option can provide comparable and sometimes better options.
The most common borrowing options for Canadians are installment loans and payday loans for people with bad credit. Being able to get loans with good interest rates isn’t complicated. Your eligibility depends on your credit score to be qualified for loans with good interest rates.
When to Choose an Installment Loan
If you qualify for an installment loan, it’s almost always a better option than payday loans.
An installment loan can come with repayment terms from 3 to 6 months to a couple years, depending on the amount borrowed, and is much more manageable in terms of repayment. An installment loan often has interest rates from 20 to 40% and will depend on your credit score for what you might qualify for. You should carefully review the agreement before choosing to sign so there is no misunderstanding of monthly payment amounts due or other details like prepayment penalties or other fees, which are found in the loan agreement along with other details.
An installment loan and personal loan are very similar. The main difference would be that personal loans sometimes have better interest rates, allow for larger amounts and longer terms, and usually more difficult to get approved for.
When to Choose a Payday Loan
While payday loans are high interest and a costly way to borrow, there are times when this option can make sense for some. For those with a bad credit score, or next to no credit history, the options to borrow a loan can be very limited. The banks won’t approve such an application, but some online lenders will consider many applicants for a loan, even if there is some risk involved.
Another consideration about payday loans is that (as the name implies) the loan will become due with interest by your next payday rather than scheduled monthly payments like installment loans. For some this can be the beginning of a debt spiral when they repay and finding themselves short on cash and needing to borrow again. This is why it is important to borrow responsibly and only request what you can afford to repay.
For the most part, a payday loan should be used as a last resort when there are no other choices available. The high interest rate of this type of loan is not recommended, but for those with poor credit and few alternatives, it’s an option for some. For some, choosing a payday loan is the right move because they are one of the fastest ways to borrow and unsecured loan. It’s for this reason that even people with good credit might choose a payday loan since it’s one of the fastest ways to get funds. This is especially true if using a payday loan with e transfer options to get the funds to you as fast as possible.
Applying for Online Loans
If you’re looking for installment loans or payday loans in Canada, the way to apply is fairly similar, even though the terms might be different.
Apply online – the first thing would be find a loan option that works for you. Things to look for include the interest rate, APR, and fees. Always review the loan agreement before signing.
Loan term – how long of a repayment term will determine what your monthly payments might look like, but keep in mind that the longer you borrow also means you are paying more interest. With payday loans the repayment is usually on your next payday.
Loan amounts – when applying for installment loans the APR might be up to 40 or 50%, but when applying for payday loans the APR can easily be over 300% and much higher.
The usual requirements for unsecured loans include being at least 18 years of age and a resident of Canada with a reliable income that meets minimum requirements and an active bank account.
The Difference Between Installment Loans and Payday Loans
When it comes to installment loans and payday loans, there’s only a few differences.
The most obvious being payday loans are very short term, requiring repayment on your next payday, where installment loans can allow for months to a year or more to repay. Also, the maximum amount you can borrow with a payday loan is up to $1,500 at most.
Some other main differences between the two include the fact that installment loans are the better option between the two for interest rates, but payday loans are an option for those with a poor credit history when borrowing is challenging and need money fast.
When comparing your options, be aware of some lenders that promise guaranteed installment loans or payday loans for bad credit, or similar offerings like no credit check loans. A lender can’t guarantee a loan, as they need to review your application to see what kind of risk you might be as a borrower. And even if they don’t use credit scores from bureaus like Equifax or TransUnion and rely on alternative data, it’s still a type of credit check. Using licensed reputable lenders are usually your best option when looking to borrow.
When you don’t have any savings an emergency loan is sometimes necessary to help you get through difficult times. You might be behind on bills, or it could be unexpected expenses like car repairs, a surprise trip to the vet or hospital, or you might just need the funds for travel or something else. Developing strong financial strategies like budgeting and saving can help with creating a better future, but it starts with educating yourself on some basics and continuing to improve on that knowledge for creating financial independence.
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Which is Better? Payday Loans or Installment Loans?
By now you understand a bit more about the differences, and that it isn’t really a case of you choosing your loan options, but that they choose you. In almost every way an installment loan is a better option than a payday loan.