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The Rise of Online Installment Loans
The economic situation all around the world, especially for working people is becoming quite hectic. The balancing of the amount of money you need for the amount of money you have at hand is becoming harder as days go by. There could also be an emergency and you need quick money to sort it out. The problem is where to get the money from. Most people have always been looking up to payday loans to sort out their monetary problems. However, payday loans could become unaffordable to pay back or manage.
What is a payday loan?
Payday loans are loans which borrowers are expected to pay back on their next payday. For these loans, you do not need a good credit history to be approved for. The only qualification you need is to show proof of employment by producing paychecks of previous months. You also need a couple of documents such as your identification card and home address, among others.
Simply, you only need to produce proper identification and proof that you are working and you should be on your way to getting the payday loan. However, as enticing as this is, there is a catch. You are supposed to pay back the loan in full plus the APR (annual percentage rate) which could go up to about 400%-450% by your next payday.
If you are unable to pay the payday loan on time, you have to renew the loan which means you will probably have to pay more as the interest rates could change. In the end, you have quite a large sum of money to repay.
These are loans which the borrower has to repay in monthly installments for a specific period of time. These loans are typically offered by banks or society groups. Installment loans have an annual percentage rate of between 25%-100%, meaning that the interest rate is much lower than payday loans.
The decline of payday loans
Payday loans are slowly declining while installment loans continue to rise. Why is that?
Payday loans have been thrust into the spotlight over the legality for potential scams and unfair practices. Payday loans have always been a great source of quick cash, especially for people with bad credit. Being the only lending option for many people, it is very common for payday lenders to exploit borrowers, especially through the use of APR (annual percentage rate) which is not clearly stipulated in law but is quite high.
The APR of payday loans could range from between 400%-450% of the total cash borrowed. This issue has attracted government’s intervention and pushing a lot of lenders underground, especially those who are not operating legally.
This is where installment loans are winning and attracting borrowers who cannot secure a payday loan due to legality issues. The numbers keep going up as the government continues to put up laws to regulate payday loans.
Most payday lenders, as the government has termed them, are abusive and deceptive and are actually in violation of Article 5 of the FTC act that requires one to comply with disclosure requirements of the truth in the lending Act. Regulators are focused on bringing sanity to the payday lending sector. The spotlight is driving borrowers away and the only safe haven left for them is that of installment loans.
Unaffordability of payday loans
Online Payday loans require borrowers to pay the whole sum at once after receiving your next paycheck. Including the cost of money initially borrowed, adding the interest may mean that you have to repay a large sum of the money all at once. This adds pressure for the borrower who is already in financial strain.
This calls for a course of action, trying to establish other ways to get money other than this money sucking scheme for them. Installment loans become the only way out of this kind of trouble.
Installment loans give borrowers breathing space as they only have to repay the loan on a monthly basis until the whole loan is paid up. This makes most people jump into taking up installment loans without even thinking twice.
The annual percentage rate of the installment loans ranges between 25%-100%t of the total money borrowed. Compared with 450% APR charged by payday loans, the cost of taking out an installment loan is significantly lower.
Amount of money being loaned
Payday loans will only loan you small amounts of cash of between $100- $1500, quite a small amount considering that you have to pay so much in terms of interest. So why get a small amount of money and be subject to high interests when there is an another option of getting more money for much less interest.
Installment loans offer more money for less interest than payday loans. This has increased their popularity and causes a massive switch from the payday loans to installment loans recently.
To conclude, we have to admit that installment loans are quite attractive, especially when payday loans are shrouded by legality issues.