Monthly Installment Loans vs. Payday Loans: Which Is Better?

Confused Man

When it comes to financial solutions, there are many available offerings. There are options from banks or third-party lending companies. In Texas alone, there are many types of loans being offered to help with your financial needs. It's all a matter of finding the right fit for you.

A Monthly Installment Loan is a type of short-term loan with an easy repayment schedule over the course of a fixed term. It is a highly advantageous type of loan because you can budget your payments every month, which allows you to handle your payments with ease and improve your credit score.

Another type of short-term loan is the Payday Loan. A borrower can get a loan amount that's a portion of his salary. The borrower must repay the loan within the next time they receive their pay.

Both types of short-term loans are good options to get much-needed cash for any type of purpose. You can apply and get these loans to fund your:

  • emergency expenses
  • home repairs
  • school costs
  • consolidation of other debts
  • vacation or travel plans
  • start-up business

However, which loan is the best fit for you and your needs? There are key differences between a Monthly Installment Loan and a Payday Loan. Understanding these differences can help you plan and manage your finances better.

We'll get to know more about these types of loans using these categories:

  1. Type of Loan
  2. Loan Amounts
  3. Loan Terms
  4. Interest Rates & Other Fees
  5. Application Process
  6. Credit Check
  7. Advantages and Disadvantages

Type of Loan: Monthly Installment Loan vs. Payday Loan

Both the Monthly Installment Loan and Payday Loan are short-term loans, as mentioned earlier. So, what else do you need to know about these two kinds of loans?

Well, aside from being short-term loans, you can check whether any of these are secured or unsecured.

A secured loan is a kind of loan in which a borrower will pledge collateral for its loan amount. Meanwhile, an unsecured loan does not need collateral in return for the loan amount. Secured loans have lower interests due to the less risk brought about by the collateral.

Monthly Installment Loans can be both a secured or unsecured type of loan. Providing collateral or not will only affect your loan amount and interest. Getting a secured monthly installment loan can get you higher loan amounts with less interest. You can still get one without collateral, but the loan amount is smaller with a higher interest rate.

On the other hand, Payday Loans can only be an unsecured loan. You do not need collateral to get this type of loan. Because it does not require collateral, loan amounts are lower, and interest rates are higher.

Handing Cash

Photo by Alexander Mils on Unsplash

Loan Amounts: Monthly Installment Loan vs. Payday Loan

A big factor in deciding which type of loan you will apply for is the maximum amount you can borrow. You wouldn't want to take out a loan that's short of the total amount you need.

Loan amounts approved for Monthly Installment Loans depend on the amount that you are applying for and your capacity to repay it. Your repayment capacity is determined through the documents you present.

What documents can help show your repayment capacity:

  1. Valid ID
  2. Social Security Card or TIN #
  3. Pay Slip or Pay Stub
  4. Billing Statement (i.e., electricity, water, phone, etc.)
  5. Collateral documents (not required when you opt for an unsecured loan)

Having these documents at hand when you apply for your Monthly Installment Loan can improve your chances of getting a high loan amount. It also boosts your chances of getting approved for your loan quickly.

Need a higher loan amount? Tiempo Loans can accommodate up to $1,420 for a single Monthly Installment Loan. Get your desired loan amount as long as your required documents are complete. Start your application now!

Meanwhile, in a Payday Loan, if you don't want to be in too much debt, you can't get a loan amount that's higher than a portion of your next pay. Loaners usually check that you at least get a $500 monthly net income.

There are also caps on the loan amount a borrower can get. There are also loan caps with payday loans depending on which state you are in. You can check out the National Conference of State Legislatures to know your state's limits. Interests and fees of the payday loan will be applied on top of your approved loan amount.

A payday loan requires complete payoff, including fees and interest on your next payday, or you must pay the fees and interest only to owe the same total amount next payday. With a monthly installment loan, you can either make a small monthly payment as scheduled or pay off the full amount and receive a rebate on the unused portion of interest.

Deadline

Loan Terms: Monthly Installment Loan vs. Payday Loan

A key difference between a Monthly Installment Loan and Payday Loan is the terms for repayment.

Monthly Installment Loans get repaid on a monthly basis over a fixed period of time. You can repay your loan over a minimum time of two (2) months. If you need more time, you can repay it for up to 12 months. Remember, if you are able to pay off sooner, there is no penalty, and the unused portion of interest will be rebated to you.

Repayment of your loan is discussed with your Loan Officer. They can give you advice on how you can pay off your loan without spending all of your savings. Just remember, the longer you take to pay off your loan, the more interest will be paid.

Now, for Payday Loans, repayment is automatically on your next salary pay-out. A lending company refers to your submitted payslips or pay stubs for when you will receive your salary. If you miss paying the entire amount of your loan, you'll be charged all fees and interest only to owe the same amount next payday. With a Monthly Installment Loan, your balance goes down as you pay with no additional fees or interest for on-time payment.

Having to pay full principal, fees, and interest on a payday loan can be very difficult if you could afford that much money each paycheck you probably would not have needed the loan in the first place. If you are unable to pay all principal, fees, and interest, the fees and interest must be paid only to start over the next payday.

The average time before you need to repay your entire loan amount is 14 days. In some states, lending companies can require you to pay within ten days. This can become a difficult loan product to service for any borrower.

Interest Rates & Other Fees: Monthly Installment Loan vs. Payday Loan

In the subject of Interest Rates and other fees, banks and lending companies have their own set amounts. Different states also have different approved rates for any type of loan.

In Texas, an add-on interest of a Monthly Installment Loan can go up to

  • $18 per $100 per year on the first $2,010
  • $8 per $100 per year on the amount over $2,010 but not over $16,750

Aside from the add-on interests, lending companies can charge other fees such as:

  • Acquisition fee
  • Document fee
  • Administrative fee
  • Recording fees
  • Non-filing insurance fees

Other companies may charge incredibly HIGH add-on interest rates, but NOT Tiempo Loans. Get Monthly Installment Loans for only $4 per $100. Plus, Tiempo Loans only add an acquisition fee of $10 per $100 (up to $100 fee). No other charges, whatsoever!

Learn more about Tiempo Loan's Monthly Installment Loans or Apply Now and wait for a call from a Loan Officer.

With Payday Loans, you will also get an add-on interest rate and other fees. The average add-on interest rate is $15 per $100.

When add-on interest rates and other fees are combined, they're known as the Annual Percentage Rate (APR). According to CNBC, the APR for payday loans can be as high as 700% percent. The state of Texas has one of the highest with a 660% APR.

Signing

Photo by Gabrielle Henderson on Unsplash

Application Process: Monthly Installment Loan vs Payday Loan

Sometimes, applying for a loan can be scary. The thought of a disapproved application immediately stops you from even doing the first step.

But, getting a loan does not need to be stressful. All you need to do is understand what type of loan you need and what process you need to finish to get an approval.

Most banks put emphasis on credit scores. If you have a low credit score, you may no longer be eligible to get a loan. Lending companies are more lenient when it comes to monthly installment plans.

How do I apply for a Monthly Installment Loan at Tiempo Loans?

Step 1: You must have the following:

  • A stable source of income
  • Residence
  • No existing unpaid loans

Step 2: Apply online or call one of our offices for a consultation.

Step 3: Submit the following documents as proof of your eligibility:

  • Valid ID
  • Recent payslip or pay stub
  • Employment details (i.e., employer, annual income)
  • Bill Statement with your current address (i.e., water, utility, phone)
  • Contact details of your references:
    • Employer
    • Landlord
    • Personal references (i.e., friends, co-workers, members of your Church)

Step 4: Wait for your loan approval and the release of your loan.

As long as your documents are in order, you won't have trouble getting approved for a Monthly Installment Loan. In most cases, your loan can be released within the same day you've submitted the required documents.

For payday loans, you need to apply to your chosen lending company. You can do this online or in person. You also need to provide the following:

  • Valid ID
  • Proof of residence
  • Payslip or pay stub

Lending companies will verify your residence, your salary, and your work. After they're done verifying, they can release your payday loan to you.

Credit Check and Credit Reporting: Monthly Installment Loan vs. Payday Loan

All borrowers want to know whether there's a credit check when applying for a loan. If you apply for a loan, any type of loan, from a bank, a credit check is mandatory.

Payday lenders do not take credit into account, which may seem like an advantage to the customer. However, they do not report credit either. That means that even if you pay on time every time there is no credit benefit, such as building credit, re-establishing credit, or increase your credit score.

Payday lending companies still file judgments for non-payment which ends up damaging your credit. This hardly seems fair considering your previous good credit was never reported.

Borrowers are often wary of getting loans because of their low credit score. Well, good news! Tiempo Loans check credit but we have narrowed the field looking at only other installment lenders such as Home Loans, Car Loans, and other Monthly Installment lenders.

Previous unpaid bills such as Medical, Broken Leases, or Third-Party Lending do not count. Every thirty (30) days your on-time payments are reported, which helps in building or re-establishing your credit. The best way to increase your credit score is to make monthly payments on time showing that you can pay a fixed amount each and every month!

Advantages and Disadvantages: Monthly Installment Loan vs. Payday Loan

Monthly Installment Loan

The biggest advantage of a Monthly Installment Loan is its maximum loan amount and easy-to-pay loan terms. You can easily get enough funds for big expenses without the need to repay it immediately.

Getting the right amount of cash is important, so you won't have trouble handling your finances. Unlike other loans, you can get a higher-than-average loan without collateral with a Monthly Installment Loan.

Plus, since the total repayment amount is broken into a fixed period of months, you can easily work the small amounts into your budget. You can pay off your loan at a comfortable pace. You won't be trapped into a cycle of debt.

Another great advantage is that the application is easy. Especially if you're getting your loan from Tiempo Loans, submit all the documents required, and you can get your cash before the end of the day!

One disadvantage of a Monthly Installment Loan is that you may incur additional fees if you want to pay ahead of schedule. This may be the case in some companies, but with Tiempo Loans, you won't get any penalty if you pay ahead of schedule.

Also, compared to bank loans and long-term loans, the add-on interest may seem high. However, you've got to remember that you can finish paying off your debt in six months!

Payday Loan

Payday Loans have absolutely no credit checks. If you have bad credit, a low credit score, or no credit score at all, you can still get cash with Payday Loans. Getting cash is easy, too. The application process does not take too long, and you'll most likely get approved as long as you have complete documents.

Despite having a straightforward application process, Payday Loans also have higher interest rates and other fees. You can get your money ASAP, but it'll cost you more than 700%.

Another disadvantage of Payday Loans is the quick turnaround time for repayment. After getting your cash, you have at least ten days to repay the entire loan amount plus the added fees. If you fail to do so, you'll be charged with rollover fees, which could trap you into a cycle of debt.

Unlike a Monthly Installment Loan, there's a limit to the amount you can get from a Payday Loan. There's a state-mandated limit to the loan amounts that can be approved for borrowers. If you need more cash, you need to take out a different loan with different fees.

Which is better: Monthly Installment Loans or Payday Loans?

Here's a recap of the differences between Monthly Installment Loans and Payday Loans:

Category Monthly Installment Loan Payday Loan
1. Type of Loan Secured
Unsecured
Unsecured
2. Loan Amounts Can get up to $1,420 Limited
3. Loan Terms Fixed Period of Time within 6-12 months As early as ten (10) days after the loan is released.
4. Interest Rates & Other Fees or Annual Percentage Rate (APR) Under Tiempo Loans:
  • $4 per $100 add-on interest rate
  • $10 per $100 acquisition fee (up to $100)
Easy and Fast
  • Step 1: Apply online or in the lending company office
  • Step 2: Submit documents
  • Step 3: Get approval and cash
6. Credit Check Not mandatory and not the biggest factor for an approval No credit check
7. Advantages
  • High loan amounts
  • Affordable loan terms
  • Easy application process
  • Credit check is not mandatory
  • No credit check
  • Easy application process
8. Disadvantages
  • May incur additional fees if you pay ahead of schedule (in some companies)
  • High-interest rates compared to bank loans or long-term loans
  • Loan amount is limited
  • Immediate repayment (at least 10 days after)
  • High rollover fees for delayed payments
  • Very high-interest rates and other fees (as much as 700%)
Shaking hands

Now, you've learned about the differences between a Monthly Installment Loan and a Payday Loan. At a glance, a Payday Loan may be attractive because getting a rejected application is close to none. However, a Monthly Installment Loan is better because:

  • You can get a high loan amount.
  • You can pay off your loan in small and affordable installments over a fixed period of time.
  • The application process is easy.
  • If you manage your finances wisely, you won't get trapped into a cycle of debt.

Are you ready to start your application for a Monthly Installment Loan? Apply online or call a Loan Officer from Tiempo Loans.