Question

a) Payday Loan b) Installment loan.

Q)Why is it important to know difference?

Q)Why would a customer choose one over the other?

Q)How would you identify the best product/solution for the customer?

Answer 1

1.

DIFFERENCE

Installment Loans vs Payday Loans

Installment loans are a broad category that include mortgages car loans and other personal loans, and tend to be longer term and require credit checks. Payday loans are technically a type of installment loan, but with a much shorter payment term, higher interest rates, and no credit check required. The payday industry has adopted the term ‘short term installment loan’ as a way to try and avoid the stigma associated with payday loans.

2.

Installment Loans

An installment loan can include all sorts of loans – mortgages, car loans, boat loans ect – but the types of installment loans that are comparable to payday loans are usually labeled ‘personal loans’.

As with any installment loan, you get a lump sum of money upfront. Then, you pay a fixed amount monthly over the course of the loan. It might be 3 years for a car loan or 30 years for a mortgage. A personal installment loan is usually around 12 months.

Any legit personal installment loan will require a credit check and a fairly lengthy application process.

Interest rates on personal installment loans will be MUCH more favorable than on any payday loans.

Remember, all of this info is about real personal installment loans – not ‘short term installment loans’ which is just a euphemism for ‘payday loans’.

Payday Loans

Payday loans are much smaller loans, usually under $1000 that are due on the next payday (hence the name). Often you will write a post-dated check or give access to your bank account so that the lender can withdraw the funds on your next payday.

The problem with payday loans is when you can’t pay them back. Lenders will allow you to rollover the loan, and pay on the next payday, with more interest. Usually they’ll throw in a few late fees as well.

What happens is that the interest snowballs so fast that you end up in what’s known as the payday loan trap. Many get stuck in payday loans and there’s few options out.

3.

Which Is Better: Payday Loan or Installment Loan?

This is pretty simple: anything is better than a payday loan.

If you can qualify for an personal installment loan, 99% of the time you should go with that over taking out a payday loan. Taking out a payday loan leads to a world of hurt including a mountain of debt, collection calls, lawsuits, and potentially even bankruptcy. Maybe try and save money instead.

Also, don’t fall for the term ‘short term installment loan’. It’s just a payday loan.

If you do decide to take out a payday loan, avoid tribal loans, and be sure that you can pay it in full. Definitely don’t take out a second payday loan. It’s not worth it.