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If you’re facing a financial emergency, you may want the quick cash that a payday loan can offer but more time to pay it back in installments, over a number of months — what some call a payday installment loan.
Unlike a traditional payday loan that must be paid back by your next payday, the idea of a payday installment loan is that you repay it — with interest — over a longer time, in installments that may coincide with your paydays. It’s also important to remember that whether a loan like this is offered in your state — and the terms of such a loan — can vary depending on state law.
Some lenders market these loans generally as installment loans, making them sound more like traditional bank loans. But super-high APRs make them a lot more risky and costly.
If you need cash fast and are looking for a payday installment loan, here’s what you need to know.
What is a payday installment loan?
Some lenders advertise loans that offer the quick cash of a payday loan, but with terms that allow you to repay the loan in installments — ranging from just longer than a single-payment payday loan to a few years, depending in part on any laws or restrictions your state has around high-cost loans.
Like other installment loans — such as auto loans and other, more traditional personal loans — these loans are repaid in multiple installments over the loan term. But interest rates are higher, loan amounts lower and repayment terms shorter.
If you’re searching online or around town for payday installment loans, you’ll find that many lenders market these loans generally as “installment loans.”
High interest rates
Payday installment loans may have APRs of 300% and more depending on state law. But some lenders let you repay the loan early without charging a prepayment penalty. That can help you avoid a lot of the interest charges. Here’s how: The more you pay over your minimum due for each payment, the less you’ll have to pay in interest and the faster you’ll pay off the loan.
Some lenders charge an origination fee that can add to the cost of your loan. For example, if you want a $1,000 loan, and it comes with an origination fee of 5%, you’d actually be borrowing $1,050, or you’d have $50 taken from your loan funds so that you only receive $950.
You also may be charged late fees if you don’t make your payments on time and a returned check fee if you don’t have enough money in your account to cover your payment. Read the terms of any loan you’re considering carefully to find out the potential fees and other hidden costs of borrowing.
Payday installment loans are available in relatively small amounts that generally range from a few hundred to a few thousand dollars. The amount you’re eligible to borrow can depend on a number of factors, including your income and maximum loan amount in your state. Unlike with traditional payday loans, some lenders may check your credit history or credit scores — others won’t.
Unlike a traditional payday loan that must be repaid on your next payday, a payday installment loan has longer repayment periods, ranging from just longer than a single-payment payday loan to a few years. Loan terms can vary by lender and the laws in your state. It’s also important to know that your payments typically will be due on your paydays, and in some cases lenders may require that they have access to your bank account to collect payment.
To find out whether you’re eligible, you typically have to complete a loan application, either online or at a storefront. The lender may run a credit check, verify that you have a source of income and confirm your identity. You’ll also usually need a checking or savings account to apply.
If you’re approved, you may be able to get your loan funds at a storefront, deposited directly into your bank account or loaded onto a prepaid debit card. You may even be able to get the cash the same day you apply or the next business day — it depends on each lender’s process.
Should I get a payday installment loan?
Because payday installment loans are such an expensive form of credit, they shouldn’t be your first option. But if you’re experiencing a true financial emergency and have no alternatives, this type of loan may be better than an auto title loan, where you’d risk losing your vehicle if you’re unable to make your payments.
What are my alternatives to payday installment loans?
If you need extra cash fast, here are a few other options to consider.
- Credit card — Credit cards typically have APRs that range from 12% to 30%. While that’s not exactly cheap, it’s less expensive than the 300% or more you might pay with a payday installment loan.
- Payday alternative loan — Some federal credit unions offer small-dollar loans, ranging from $200 to $1,000, with repayment terms of one to six months. You may be charged an application fee of up to $20 to get one, but interest rates are capped at 28%.
- Short-term loan from a traditional bank — Some banks offer small loans as an alternative to payday loans. They can be expensive compared to other types of credit, but they typically have lower APRs than payday installment loans. If you’ve had financial difficulties in the past or have little to no credit history, having a co-signer or co-applicant with solid credit might help you to qualify — or to get a better interest rate — for a small, short-term personal loan from a traditional bank.
- Borrow from a friend or family member — If you know someone who can lend you money, getting a loan from family may be a better option than a payday installment loan.
Payday installment loans — small-dollar, high-cost loans that you can pay back in multiple installments — are not meant to be a long-term financial solution. If you find yourself routinely strapped for cash, consider talking with a credit counselor before getting a payday installment loan. A credit counselor can give you an honest assessment of your finances and help you create a sustainable plan to get your finances on track.
If you’re experiencing a true emergency and have no other options, proceed with caution. And be sure you have a solid plan in place that will allow you to repay your loan on time and avoid as much as you can in interest and fees.