If you’re in an emergency situation and need to borrow money, there are many types of loans available to you as long as you have a good credit score. Unfortunately for many people, this is not the case. Having a poor credit score can make it much harder to secure a loan. But this doesn’t mean it’s impossible to find loan options.
The two most common loan types available if you have bad credit are:
1. Payday loans
Payday loans are high-interest loans that must be repaid as a lump sum in a very short time period, ranging from a week to a month (31 days). Payday loans get you the needed funds within a matter of minutes, making them a popular choice when people are faced with an emergency expense. Payday loans also have lower borrowing limits, typically around $500 to $1,000.
2. Installment loans
Installment loans are loans that can be repaid with regular fixed payments over a predetermined period of time. Installment loans can be paid off within months or years, depending on how long the predetermined period is.
Most (but not all) installment loans require an application process that often includes a credit check from the lender, which will determine the interest rate and terms of the loan. Lending caps on installment loans are higher than payday loans, sometimes exceeding a few thousand dollars.
Installment loans are more common than you think. Examples of installment loans include auto loans, student loans, personal loans, and mortgages.
What’s the difference between a payday loan vs an installment loan?
Payday loans are riskier than installment loans, as they often charge interest as fees. You’re also given a shorter amount of time to pay the loan off, which is a huge risk if you can’t pay it off in time.
Payday loans require less information than installment loans do. Usually, there are 4 things that are required for a payday loan:
- A bank account
- Proof of income
- Valid ID
- Being at least 18 years old
While payday loans may look tempting due to how easy they are to obtain, they often come at a higher cost in the long term that can get borrowers caught in a cycle of debt.
Even if you have bad credit, you still may be able to get an installment loan — just with higher interest rates and more fees (such as administrative fees for every payment) than you would with a good credit score, though not all lenders check credit.
Installment loans have a fixed interest rate and fees, so you can expect the payment to be the same every month. This is not the case with payday loans, which can vary depending on how much of your loan is left if it isn’t paid in full.
The application process for installment loans generally takes longer, so you may have to wait longer before the money shows up in your account, but once it does, the entire loan will be there all at once.
Installment loans don’t need to be paid off as quickly as payday loans, giving borrowers more time to get the funds together.
Which type of loan is right for me?
Just because payday loans are easier to obtain does not mean that they are a better option. In the majority of cases, they’re not.
The installment loan is almost always the better choice if you need to borrow money. The interest rates and what you pay each month are going to be the same unless you miss a payment, which can add more penalties and fees to your monthly payment.
LoanStream works with a network of lenders from across the country to help you find the best short-term installment loan option for your financial situation — without us running a credit check. All you have to do is submit your loan request, review lenders’ offers, and receive your funds. Submit your request now to get started.