Understanding Installment Loans From Payday Lenders – They Might Not Work How You Think They Do!

The definition of installment loans is a loan that is repaid over time with a set number of scheduled payments, but one that comes from a payday lender and your local bank are going to be very different. The most glaring difference is the extreme price, but there are other things as well. Knowing what you’re getting into before you apply for a loan is one of the single best things that you can do to protect yourself from falling into major debt. This post will help clear up some of the myths surrounding these loans so that you can apply with confidence if you choose to.

So What Is The Real Cost Of Installment Loans?

Getting an unsecured personal loan from your bank is likely to net you a fixed APR of somewhere between 6-15%, which is great if you can take this route. Most banks will set the loan minimum in the $3,000 range, much more than a payday lender can offer. Doing the math with a $3,000 loan, at 9.5% interest, for 3 years will have a monthly payment of about $96.10, which makes the total payment to the bank $3459.60. Not too bad if you ask me!

Getting the loan from a payday lender will give us an entirely different set of numbers. Going off of the information on a direct lender’s site that I will not name, they offer installment loans that range from $250 to $800, with an APR of 360%, with the loan to be repaid over 12 biweekly payments. Now doing the math here with an $800 loan we get 12 biweekly payments of $139.71, and a total payment of $1697.13. You’re going to end up paying more than the amount you borrowed in interest! Do some quick math and figure out what your life will be like with $140 missing from your next 12 paychecks before you decide on these loans.

The problem now becomes that many people simply cannot get a loan from the bank, which is why so many people turn to installment loan lenders in the first place.

What Does It Take To Get A Payday Installment Loan?

To be honest, not much! The requirements are almost the same as a normal payday loan. You need to have steady employment, meet the lender’s monthly income requirement, and have a checking account that is in good standing. Some lenders are going to check your credit, but in most cases they are doing so to see how much you currently have in outstanding collections, rather than your credit score.

These lax requirements are the reason that many people turn to installment loans. They are almost TOO easy to get, which leads some to apply without checking out all of their other, more affordable options.

Are There Any Affordable Alternatives To Installment Loans?

If you’ve read this far you may be turned off by the idea of these loans, that’s fine, there are alternatives out there!

Many banks are getting hip to the idea of short term lending, which usually ends up much more affordable than using a payday or installment loan. Take Wells Fargo for example, they offer something to their customers called a direct deposit advance. This works exactly like an online payday loan, but it happens completely within the bank and costs a hell of a lot less. Rates for these are $1.50 per $20 borrowed, or $7.50 per $100. To compare, average payday loans charge $17-30 per $100 borrowed.

For something with longer terms you can look into personal loans from your bank or local credit union. These are going to require that you have a decent credit score, but they will be much more flexible in both your terms and amount you can borrow. Fortunately, banks have gotten much faster over the last few years, and can rival payday loans in the time it takes for you to get paid. Assuming you’re approved, funds can be in your bank account by as soon as the next business day.

Which Loans To Avoid If You’re Trying To Save Money

There are lots of fast loans out there, and most of them are ridiculously expensive. Title loans are a common option that get too many people in trouble. Rather than go much further into these, I’ll share a quote from Americans For Fairness In Lending:

The typical car title loan has an annual interest rate of 300% or more.
In Oregon, 19% of title loans that were paid off in May 2002 had been renewed six times prior to payoff.
The Missouri Auditor found that, on average, car title lenders make 3.5 times more renewal loans than new loans each month.
Over half of the states ban high-priced car title lending, but in states where it is legal the industry is growing at an alarming rate.

It’s pretty scary stuff!

Pawn shops are also a common way to get money if you have valuable stuff laying around your house. There is less risk here if you don’t plan on getting whatever you pawn back, but if you do the rates are among the highest in the industry. Loan terms are generally a few months, but expect the lender to charge you the maximum interest they legally are allowed to do.

Borrowing Money Is Never Fun

Once you get the whole picture, payday installment loans probably aren’t a good idea to use. However, knowing exactly what to expect may help you get the loan from a payday lender and use it safely. Whatever you do, please use caution and responsibility with your loan to make sure that you don’t end up with a mountain of debt in front of you.

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My name is Lydia and I'm and expert at getting fast cash. I've been through it all, and now I want to share my experience with you

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