Simply put, Installment Loans are loans that are paid in a specified, limited set of payments over a set period of time. The payments and length of time for the payments to be maid is at the discretion of the involved parties. Many loans qualify as installment loans, including house or property mortgages, unsecured loans, personal lines of credit with banks or institutions and auto or other vehicle loans. These loans are often viewed by regulators and other financial experts as being superior to traditional payday loans or credit card debt. These payday loans have compounding interest that may change with time, while installments are a set number of payments over a certain period of time. This is safer due to less fluctuations in the value of the loan caused by variable payments over an undefined period of time. Also you are locked into a rate so you can plan your finances accordingly, which prevents you from defaulting and ruining your credit and also allows the lender to have increased faith that you will pay the loan back.
Many government agencies, such as the Department of Defense, have not added, or subsequently removed installment loans from their list of usurious or “predatory” loans that people who are in the armed services can be held accountable for. Other Payday or Cash Advance loans are required by law to not act in a predatory manner towards members of the Armed Services as well as their immediate families, spouses, children etc. The media also has a generally more favorable view of installment loans, since they have less red tape and financial language designed to obscure either the true cost or length of the loan. These loans are generally unsecured loans, so a creditor is not entitled to repossess any property or other asset if the person receiving the unsecured loan fails to make timely payments or make payments at all.
Borrowers and Lenders work together to craft a plan and payment schedule as well as the interest rates of the loan and then the borrower pays back the loan on that schedule for a set period of time. It is a very simple loan concept that can be applied to nearly anything, from credit cards to cars. Since installment loans are very diverse, they are not necessarily better than Payday Loans all the time. For example paying a 30 year loan at 100 percent interest would be a horrible installment loan. When you take a payday loan you are essentially paying a 2 week loan at that price plus fees and late payment problems.
When it comes down to it, anytime you have the ability to take a Payday Loan or an Installment Loan you should always take the Installment Loan. The Installment Loan may be a bit harder to get, or the timing might be different but taking an installment loan protects you from the vast majority of predatory practices involved in Payday Loans, which include charging outrageous percentages in interest, tacking on massive use fees or late payment fees that would be unreasonable in another situation. Payday Loans are also very short term, and require you to come up with the full loan amount plus interest in a relatively short time. With installment loans you can pay for as little or as long as you want, for example many mortgages are 30 years or more.
Installment loans have a number of advantages over Payday loans but you should always read all of the fine print with any type of loan. While much of the time installment loans are superior, depending on the situation a Payday loan might be a better choice. It all comes down to the terms on your loan, and your reason for needing the loan.