Getting your personal spending under control is the first step toward financial freedom. Debt is the number one cause behind you not living your best life worry-free. Too much debt can make getting ahead a seemingly impossible task. There are plenty of options to get your finances back on track, but some are a better option than others. Should you take out Wise Loan online installment loans or a payday loan? What is the difference and which one is best? Knowing the answers to all of these questions will help you make a wise decision about the future of your finances.
What Is An Installment Loan
Simply stated, an installment loan can be either a personal loan or a commercial loan that you pay back with regularly scheduled payments or installments, hence the name of the loan. When paying off an installment loan, you are paying for a portion of the principal amount borrowed as well as the interest. How much these loans vary on how much the loan was for, the interest rate that you are charged, and the amount of time on the loan. Installment loans are very common.
Some examples include auto loans, mortgage loans and some personal loans. Keep in mind that unless you are taking out a mortgage loan, almost all of your installment loans will be at a fixed rate. All this means is that the interest rate you were charged when you took out the loan will remain the same. To make repayment easier, the amount required to keep your account in good standing will be consistent every month.
Within the tree that is installment loans, there are branches of two different types of installment loans: collateralized and non-collateralized. Collateralized loans involve the use of a valuable asset in exchange for a loan. For instance, when you take out a mortgage loan, the house is a valuable asset. The same thing goes when you take out an auto loan. The vehicle is a valuable asset that is used.
non-collateralized loans do not require that you exchange something for the loan. These loans are solely based on your credit history. If you have great credit, nine times out of ten, you will qualify for the thing you are applying for. Typically, personal loans are the motivating force behind non-collateralized loans. You can expect to pay higher interest rates with these types of loans.
What Is A Payday Loan?
A payday loan is a short-term loan, typically for a small amount. Also referred to as a cash advance loan or a check advance loan, it is an unsecured loan and you can expect to pay high-interest rates. The reason these loans are unsecured is that in addition to the high-interest rates, there is no collateral. The principal of the loan is typically for a portion of your next paycheck. Keep in mind that a lot of payday lenders can be considered predatory since they charge so much in hidden fees along with super-high interest rates.
In order to apply for a payday loan, you can visit a local small credit merchant with a brick-and-mortar location where you can apply and be approved on the spot. Just make sure that you show your paystubs as proof of income. The amount you are approved for depends on a percentage of your estimated short-term income. Sometimes you can use your earnings as collateral if the situation is dire. The term of the payday loan depends on your credit score and credit history.
Which Is The Better Choice?
Knowing which one the best option is imperative. You do not want to dig yourself into a bigger financial hole. Your goal is to climb out using all the resources you have. The instinct is to denounce payday loans and go for installment loans, but each come with their advantages and disadvantages.
Installment Loans
These are a great option if you want something that is flexible and customizable. You can adjust your loan amount and the amount of time it takes to pay it back to what works best for you. You can also expect to pay lower interest rates than what is typically available with a credit card.
Installment loans are not foolproof. They also have their disadvantages. If you are paying back a long-term loan, you may have to make payments on a fixed interest loan where the interest rate is higher than the current market rate. You can get around this by refinancing your loan.
Another important disadvantage is being stuck in the loan long-term, meaning you will have to keep making payments for longer periods. This increases your risk of unfortunate circumstances that can make it more difficult for you to keep making those scheduled payments on time.
The bottom line, you are able to pay this loan back in smaller payments over a longer period of time.
Payday Loans
One great thing about payday loans is that they are very short-term. They are best used for emergency purposes or expenses, meant to hold you over until your next paycheck. Payday loans are easy to be approved for and you can get your money immediately.
The greatest disadvantage to payday loans is its sky-high interest rates. These interest rates can make paying it back in the way that you planned unnecessarily difficult. Some lenders charge interest rates as much as 500 percent in annual percentage yield.
It is very easy to fall into a trap if you are not careful. More and more laws have surfaced to protect people from falling prey to a lot of payday loan lenders’ predatory practices, but there are still many loopholes that you can fall for.
The bottom line, you make payments in lump sums over a shorter period of time otherwise it will be difficult to pay back.
Applying For An Installment Loan
Make sure that you are familiar with your credit score before you apply as that will pay a huge role in whether or not you get approved. Once you know your credit score, determining what your loan options are is simpler. You can apply for an installment loan from your local bank or credit union. You can also apply online from qualified lenders online.
Make sure that you have your driver’s license, social security, check or savings account information, and proof of income and expenses. You should also be prepared to let your lenders know what you plan to do with the money if approved for the loan.
Are There Any Alternatives?
Maybe you are not comfortable with taking out this type of loan, or maybe you suspect that you will not qualify. That does not erase the fact that you need cash fast. Luckily, there are a few alternatives that can help you out.
OppLoans
This is a relatively new way to borrow money. It’s an app that can offer installment loans of up to $4,000 at a much lower interest rate than typical payday loans. They do not use your credit score as a way to determine your base loan approval. Opploan only looks at your employment, income and expense history.
Earnin App
This is another app that can help you get out of a pinch. If you are traditionally employed as well as an independent contractor, you can borrow up to $100 at one time up to $500 against any incoming pay. Simply put, it gives your access to money from your paycheck early without charging a high-interest rate.
Credit Cards
Applying for a credit card is another great alternative to getting fast cash. Make sure that you are paying off your monthly balance consistently and on time to get the most out of this option. You can wind up saving tons of money on this option if you are responsible.
Credit cards are way more flexible to pay back, just make sure that you are following best practices when using them so you do not make your debt problem worse. Try getting a credit card through your local bank or credit union. They will be able to provide you with the best options based on your financial situation and your financial goals.
Bottom Line
Being in debt is the worst. It is soul-crushing, challenging, and sometimes frustrating. It can feel like you will never get ahead. Stay positive and know that you have options. Do not panic and continue to educate yourself on how to better manage money. If you have run out of all practical options, consider turning to a financial advisor.
They will be able to walk you through some of your past financial mistakes, how to avoid them, and how to set you up for success. A great financial advisor will help you reach your long-term financial goals. Think of it as an investment in yourself. If you are tired of living paycheck to paycheck, and you want to be one step closer to financial freedom, enlisting a financial advisor is the best decision you can make.
Post written on Hollybeetells.com