To understand the differences between instalment loans and payday loans, let’s first understand the meaning and key characteristics of each:

Instalment loans - These loans are called so because of the equal payments that borrowers make each month to the lender. Every instalment and repayment schedule is pre-arranged before this loan is finalized. Instalment loans generally offer larger loan amounts as compared to payday loans.

Benefits of instalment loans are:

  • Higher loan amount
  • Refinancing is easy with instalment loans with a smaller principal and longer tenure
  • It acts as a solution for cash needs that can be paid in increments over a long period

Payday loans - These loans come in small amounts and are required to be paid back within a shorter time frame.

The benefits of a payday loan are:

  • This is a simple and easy way to obtain extra cash
  • Solution for short-term cash requirements while awaiting paychecks
  • Individuals can promptly look after emergency expense needs
  • Ideal for borrowers who can pay back the loan immediately

Some of the key differences between instalment and payday loans are as below:

 

Instalment loans

Payday loans

Loan amounts

The higher loan amount can be availed

The lower loan amount for basic cash needs

Loan terms

Long term loan tenure

Short term loan tenure

Cost of borrowing

Comparatively lower interest rates

Higher interest rates

Credit check

Invites credit check from lenders and the interest rate and loan terms are accordingly calculated

Lenders generally verify borrower’ income or bank account and credit check may not be performed