As one of the most convenient forms of short-term loans, payday loans can be both an effective and confusing solution. While most loans can either be categorized as installment or revolving loans, it all seems undefined with payday loans.
Payday loans make a great way to pay for your current expenses, but they can come with high-interest rates. To make things simpler for you, we reviewed all the types of short-term loans to answer this question. We will bring you all the details about installment and revolving loans and their connection to payday loans!
Student loans and personal loans can be the best-fitted solutions to specific situations. So, in your time of need, these loans can help you, but only if you understand their differences compared to revolving loans and installment loans.
What Makes Payday Loans Unique?
Payday loans can be confusing when it comes to categorization because their aspects are unlike traditional short-term loans. Getting a payday loan can be a good solution because you cannot prolong the loan or pay period.
You have to return the loan amount within the designated deadline that is mostly right after your paycheck. Therefore, you get money between your paychecks, but it all comes at a great interest rate. An appealing factor for this type of loan is that sometimes a checking account is all you need to get the money in your pocket.
Namely, the rates for this type can be quite high, so you can end up paying high fees just for the short-term loans. Most of the aspects are not aligned with other types of installment or revolving loans. Because of this, it makes much sense that they are unique.
It takes a deeper look to decide a payday loan’s exact category, so we will discuss the details below. Stay tuned for the comparison details of installment and revolving loans that could give us the answer.
Is a Payday Loan an Installment Loan?
Installment loans are great short-term money solutions when you need a financial boost for a couple of months. Every month, you pay the interest rates and repay your total debt in monthly payments.
Sometimes, an installment loan can even be managed with different periods for repayment depending on the duration of the loan. However, besides the short-term loans, installment loans are mainly viewed through the prism of long-term mortgages that require collateral.
It makes perfect sense that the larger amount of cash can be negotiated for an installment loan as the means to pay for a house or car, based on the income. When it comes to payday loans, on the other hand, they are perfectly suited for short-term borrowing in a lump sum.
A payday loan can’t help you much with expensive purchases, but it can rather be an instant boost. You can use this loan to maintain your money flow through the periods in between your salary. This is one of the main differences between payday loans and installment loans.
The other difference is that you can use your checking history and account to apply for a payday loan. Some payday lenders will safely provide the funds even if you don’t have a high credit score. If you need an instant and short-term loan, our experts can give you the best advice.
Nevertheless, an installment loan application requires more aspects before your loan is approved. Since you pay one lump sum, payday loans don’t fit under the category of installment loans. These are two different types of loans, both of which are secured for specific needs.
The Connection Between a Payday Loan and an Installment Loan
While the essence of payday loans conflict with the nature of installment loans, some factors are common for both. For example, sometimes, these loans can be divided into two payment terms, which can be on the days when you receive the next paycheck.
When you look at it from that perspective, it’s possible to relate payday loans with installment loans. Still, it is rare for installment loans to be paid off in whole, with the maximum due date made of two installments. Note that lower interest rates are another factor that makes an installment loan different from payday loans.
In most cases, installment loans take months, or even years, for the customer to return the borrowed funds. Payday loans require strict due dates for returning the cash, so you should be careful with the deadline. The terms for using the service of these two types of loans also depend on credit unions.
Ultimately, we can say for sure that a payday loan is not a type of installment loan. It rather relies on separate monthly payments for short-term loans with re-negotiated terms in cases where you can’t pay back the loan as a whole. Also, a credit check is not the same for the two types of loans, and neither is the credit report. While installment loans require high credit scores, payday loans may be given to applicants with lower credit history rates.
Is a Payday Loan a Revolving Loan?
Revolving loans are usually meant to be time-effective in the sense that they tend to repeat from month to month. While this may be a good solution for situations where you need to borrow money fast, revolving loans are rarely short-term loans.
This loan type lasts several months and comes without a proposed credit limit that you can borrow. For instance, credit cards are a certain type of revolving credit loan. You have access to your PIN for the credit card, and you can take the cash whenever you need it.
Based on the value you have spent, you can take as much as you need and return the funds at the end of the set period. So, can we make an alignment between the revolving credit loans and payday loans? While they can also be flexible when it comes to the amount of a payday loan, you can rarely truly repeat the loan.
It’s possible, in some cases, that you can prolong the loan for one more month if you can’t repay the loan in time. Of course, this also has a lot to do with the lender, as not all lenders will agree to prolong the loan. Some may include even tougher terms and higher interest rates than you think.
On the other hand, with a payday loan, you can’t make that mistake as the terms are pre-arranged. So, while it may seem like there’re some common elements, a payday loan is not a type of revolving loan.
Common Factors for Revolving and Payday Loans
There are some common elements for payday loans and revolving loans that can lead you to the mistake of thinking that they are the same. For instance, both payday and revolving loans should be repaid at the end of the designated period.
For payday loans, repayment usually refers to the end of the month, while revolving loans can vary in such terms. It’s quite often that revolving loans are returned monthly, which makes sense if someone mistakes payday loans as revolving. Repayment dates also depend on the credit card type.
Additionally, the similarity is that payday loans can sometimes be rescheduled when it comes to payments. If you can’t afford to repay in time, a lender can give you another period of one month to do it. Still, the fees and interest rates jump sky-high in such scenarios.
We advise you to always go over the deadline terms for repaying the payday loan to prevent such cases. While they start over at the beginning of a new period, payday loans can only be rearranged to start over at the end of the month.
As you can see, there are a few clear differences, so make sure not to misinterpret credit card loans and other revolving loans with payday loans. The two types may seem similar, but they come with different sets of rules and repayment routines.
Find Suitable Payday Loan Alternatives With DirectLoanTransfer
Now that you are aware that payday loans are not installment loans or revolving loans, you can use them properly. Still, if you are looking for some features of an installment loan and revolving loans, some financial institutions provide such services.
With DirectLoanTransfer, you can rely on our connection service to provide you with the perfect loan for your exact needs. You just say the word, and we’ll rush to find the best possible short-term loan for you in no time! Payday alternative loans could be just the thing you are looking for.
Overall, payday loans don’t fit into the groups of installment loans or revolving loans, and now you can see why. Our team of financial experts here at DirectLoanTransfer will be at your disposal if you are looking for specific elements of these loans in a payday loan.
Now that you have a better understanding of the various types of loans you can receive, and what a payday loan entails, you can decide and apply for a loan with confidence. DirectLoanTransfer is available to assist you with any questions you may have, help you with your application, and find you the best rates and deals that fit your needs!