What Are The Different Types Of Personal Loans?

different types of personal loans

If you've spent time online recently looking for a loan you've come across many types of personal loans.  Many of us know all about payday loans and how they work but only recently have installment loans burst onto the scene.  Short Term finance companies and payday lenders operate as lending services. These operations provide small to mid dollar loans with higher than average interest rates.  Beyond that though, the structure of payday loans and installment loans are quite different. 

There are three main components of a direct payday loan.  First of all, payday loans are generally offered for a short amount of time.  For example a direct payday loan in California usually has a payoff term of anywhere from 14-21 days.  Each state has different requirements but they're usually going to need a loan payoff within a few weeks or a month.  Payday loans are granted for a lower dollar amount compared to installment loans.  Some states will allow a max of $255 while other states may go up to $1,000.  Payday advances will always have a higher interest rate versus other types of low interest financing.   Some payday lenders will charge interest rates that are well over 200% for a simple direct payday loan.  The direct payday loan industry charges high interest rates and works with bad credit customers. This stigma makes installment loans look much better in comparison. 

Installment loans are setup as one specific amount due.  This amount due is set over a certain period of time into monthly payments.  Once you make all your monthly payments per your loan terms you will no longer owe any money to the lender.  For example, let's say Betty took out a personal loan for $5,000.  To pay off her loan in full she's going to be paying a set amount of money each month.  This monthly payment includes the loan principal amount and interest charges. There's also the issue of advanced fee lending. Read all about the high interest rates and advanced fee scams by going to this FTC pageMost installment loans have low interest rates and longer payoff terms. Compare this to payday advances that come with high fees and rates. Some lenders will let you pay off your loan early with no prepayment penalty.  One other difference to point out is that personal loans are usually more complicated than car title loans. Since you're borrowing more money than a traditional direct payday loan you'll need to deal with more payments and requirements. There are many different factors that go into choosing the best type of financing for your needs. Start by searching a database of direct lender companies and go from there. Many well rated financial companies will provide this new type of financing. It makes sense to spend some time reviewing the best lenders. 

Installment Loans Aren’t Always Easy To Get 

Based on the differences we've touched on above many consumers would likely choose an installment loan online over a direct payday loan.  On paper it's a no-brainer as you're going to have more flexibility, lower interest, and more time to pay off the loan.  With that, it's not always that simple.  Many consumers are not going to be eligible for any type of installment loans online.  Credit requirements are tough with installment loans direct lenders. Most consumers looking for a short-term loan will have no chance of qualifying.  That brings us back to square one.  Payday loans get a bad rap but they serve a purpose.  Many consumers have no chance to qualify. These applicants have a lack of financial solutions and have nowhere else to go without a payday loan option.  If you find yourself in this situation make sure you need the loan and that you pay it back in full by the due date.  This way you're keeping your interest charges down and not getting stuck in the payday loan cycle. Cash advance are the way to go if you're looking to borrow a good amount of money while at the same time have good to decent credit.

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