If you need some cash to cover an unexpected expense, you may be considering a payday loan. But even if you have bad credit, an installment loan such as a personal loan may be a better option.
Why should you try to get an installment loan for bad credit rather than a payday loan? Here are just a few of the best reasons.
- Bad Credit Installment Loans Can Help You Build Credit
This is one of the most important reasons to choose a bad credit installment loan. Payday loans are usually not reported to the major credit bureaus – even if you pay them on time, they won’t help you build your credit score.
A bad credit installment loan from a bank or online lender will always be reported to credit agencies. That means if you take out a reasonable loan and repay it on time, you may be able to build up your credit score – so you’ll pay less in interest and fees in the future!
- Payday Loans Have Much Higher Interest Rates
A payday loan should only ever be your last resort if you need cash fast. This is because they typically have service charges of about $30 for every $100 you borrow. That means the APR (annual percentage rate) of a payday loan can be 300% or higher.
In contrast, installment loans for bad credit have an interest rate that’s usually capped at 30% – and most people will qualify for a lower rate, or can find a lower rate by shopping around at multiple lenders.
- Installment Loans Let You Borrow More Money And Repay Over A Longer Period
With a payday loan, you typically can only borrow $200-$1,000, and you have between 2-4 weeks to repay it, depending on the date of your next payday.
This is not the case with installment loans for bad credit. You can borrow much more – depending on your income level and credit score – and get loan terms of between 12 months to 5 years. This means you can borrow more money, and repay your loan more gradually over time.
- Bad Credit Installment Loans Have Lower Late Fees & Costs
In most cases, if you have trouble making a monthly payment on a personal loan, you can contact your lender and work out a solution, and avoid high late fees and other penalties – and unless you don’t pay for months at a time, your loan likely won’t be sent to collections.
This is not true of payday loans. Payday lenders may charge you extremely high late fees and penalties – and if you don’t pay right away, your loan will be sent to collections quickly – which means you’ll be hassled by bill collectors, and your credit score may plunge even more.
Choose A Bad Credit Installment Loan Over A Payday Loan
Even if you have bad credit, you can usually find an installment loan that will offer you better terms, a longer repayment period, and lower interest compared to a payday loan – so explore your options for bad credit installment loans now, and get the cash you need.