When you’ve got bad credit but you’re in need of some quick cash, where do you turn? Most banks will turn you down and applying for a credit card is time-consuming, to say the least (if you’re even approved). If you were to do an online search on loans for people with bad credit, you’d likely be routed to either payday loan or installment loan lenders who are willing to help you out of a jam. It’s great that you’re able to get some relief, however, which one is the better option for you?
Payday Loans for Bad Credit
Payday loans are short-term loans that are geared towards people with bad credit. They are fairly easy to apply for and could get you several hundred dollars in your checking or savings account in a few days. Some of the eligibility requirements to apply for a payday loan include you be 18, have verifiable income, and a checking account in good standing.
You’ll be asked basic identifying information such as your name, address, place of employment, take-home pay, etc. You may be asked for supporting information such as a copy of your most recent bank statement and pay stubs for proof of income. Most applicants receive a decision within a day or so and funds to follow.
If you are approved for a payday loan, you will essentially sign an agreement that states you will pay the balance in full on your next scheduled payday (within 14 days typically). This likely isn’t going to work for someone who’s struggling financially. Trying to repay $100 to $1000 back in two weeks is often impossible without needing to take out another loan or falling further into debt. Though they do offer you the option to extend the loan, it requires you to pay a fee that does not get applied to your loan in any way.
Installment Loans for Bad Credit
Installment loans are a bad credit payday loan alternative. Though they have basically the same eligibility requirements and application process, there is a significant difference in repayment terms which makes it a better option for those who need a little cash.
If approved for an installment loan, there are more flexible repayment options. The balance of the loan and interest are divided up into smaller payments. Every time that you make a payment on your installment loan, the amount paid is applied to both the interest and principal balance of your loan. With a longer period of time to repay the loan in full and no worries about extension fees, borrowers are able to pay off the balance faster, afford their regular financial responsibilities, and avoid digging a deeper hole for themselves with debt.
When it comes to comparing payday loans to installment loans, the latter always wins. Though both are beneficial for getting you out of a financial jam, many are advised to avoid payday loans because they could make your matters worse. If you’re in need of quick cash, it is best to see if you qualify for an installment loan to get you the help you need first.