If you need to borrow money, then you have quite a few options available to you. Choosing the right type of loan is incredibly important, because you might lose a whole lot of money if you choose incorrectly. To help you out, here is an introduction to the benefits of choosing installment loans:
What is an installment loan?
Many types of loans that you are familiar with, such as mortgages or student loans, are actually part of the broader category known as installment loans. Any loan that is paid back over several payments is an installment loan. They can be as short as two payments over a few weeks or dozens of payments over a period of years. Interest will likely be paid on each payment.
Installment Loans vs. Payday Loans
Payday loans are extremely short term loans and are usually taken and paid back within the span of a week or two in a single payment. This is because payday loans generally have extremely high interest rates that can be very unforgiving if you fail to pay the loan back on time. A payday loan is a valid option if you immediately need a few hundred dollars, but it isn't financially feasible to use payday loans for large sums of money or on a frequent basis.
To contrast, installment loans can be used for much larger sums of money and thus can cover expenditures that payday loans cannot. While a payday loan might cover a small medical expense, any large procedures would require the use of an installment loan. If you want to buy a house or pay for college, then a payday loan will be unable to help. Installment loans offer much lower interest rates and can even be cheaper to pay back on a month-by-month basis.
Installment Loans vs. Credit Cards
Credit cards allow you to make a variety of purchases that you would otherwise be unable to make since you don't have the money. The main difference between a credit card and an installment loan is that a credit card is known as revolving credit, which means that there is no predetermined sum that is loaned to you. Instead, you have access to a line of credit that allows you to take out a miniature loan every time you make a purchase.
Credit cards are good for small purchases and building up a good credit rating, but only if you make your payments on time every month. With a credit card, you might feel tempted to make purchases that you would not otherwise make. With an installment loan, you tend to have a clear purpose for the money and are probably less inclined to make superfluous purchases.Share