When you're in an emergency financial situation and have less than perfect credit, you might turn to either payday loans, which are generally required to be repaid in a lump sum, or installment loans, which are spread over a more extended period. And even if you have no time to look for different instant loans for bad credit and how they work, it is advisable to learn the distinctions between payday and installment loans to help you pick the right loan for your financial situation.

If you need help comparing the features and benefits of both payday and installment loans, we're here to help you out.

What Is A Payday Loan?

Instant, flexible, and convenient are some of the words that lenders often use to describe payday loans, and this claim does hold water to a great extent. A payday loan is nothing but a short-term lending option for those who need quick cash until their next payday. This is why payday loans have short repayment terms and, in most cases, are meant to be paid off in full by your next paycheck.

Payday loans are usually used during cash emergencies like paying an unexpected bill or rent when your paycheck isn't enough. These loans are easily accessible as they do not require credit checks. However, the main reason why borrowers might resist opting for a payday loan is that they notoriously have high-interest rates.

What Is An Installment Loan?

Installment loans generally need no introduction - they are one of the most popular forms of credit. When you opt for an installment loan, you agree to borrow a lump sum of money and repay the principal with interest over time. It makes perfect sense to use an installment loan to finance your big purchases like a home or vehicle.

Since you know how much you owe upfront in case of installment loans, it can help you create your monthly budget and plan your spending accordingly. Usually, secured installment loans have lower interest rates than unsecured loans and no prepayment penalties. A few examples of installment loans include car title loans, student loans, personal loans, auto loans, and mortgages.

What's The Difference Between Payday Loans And Installment Loans?

Although payday loans and installment loans can prove to be helpful when you need cash immediately, there are some noticeable differences between the two based on a variety of factors like:

How To Choose The Right Loan For You?

Selecting the right loan for yourself can be tricky. But if you know what type of loan you need, secured or unsecured, and whether you have the ability to repay, things could get a little easier.

Your credit score could also help you decide which loan to choose between installment and payday. It's generally believed that a payday loan is a better option if you have a low or no credit score. Fortunately, some lenders provide bad credit installment loans too.

In addition, if you're looking for improvement in your credit, it's important to note that payday lenders typically do not report your on-time payments to credit unions. However, they do report if you fail to make payments. On the other hand, installment loans can offer you the opportunity to build credit if you make on-time payments over time.

Your loan requirement is also crucial. You can get more cash and even more time to repay with installment loans than payday loans. Also, the high APRs attached to payday loans make them more expensive and comparatively hard to pay back.

Having all that said, choosing between installment and payday loans perhaps depends on your financial situation and how you want to manage it.