If you’ve ever taken out a loan, you’re probably familiar with the terms, “installment” and “single pay” loans. But do you really understand the pros and cons of each? Making an informed decision about which loan works best for you is a crucial step in taking back control of your finances. At RISE, we believe you deserve to be informed so let’s take a closer look at these common loans.
LOAN TYPE 1: THE SINGLE PAY LOAN
A single pay loan (a.k.a. Payday Loan) is easy to obtain. However, this loan requires you to pay back the entire amount of the loan and usually very high interest amounts on the exact date the loan matures. Failure to do so means that you’ll need to borrow again, which may come at a high cost.
- Single pay loans are great for filling in the gap in your day-to-day finances.
- This is a good option if you need money immediately and you know that you’ll have the funds available to pay back the full amount soon.
- Because they are simply priced, the total payback amount is always known, up-front.
- Single pay loans mature on a certain date, so ideally, you won’t pay extra interest over time.
- Typically have a higher APR than installment loans.
- Borrowers have little flexibility if unexpected expenses arise.
- If you’re unable to make your payment in-full on the agreed upon date, you’ll need to borrow again, which ultimately costs you much more than you had originally planned.
LOAN TYPE 2: INSTALLMENT LOAN
Installment loans, like RISE loans, are paid over time and accrue interest. The interest rate often varies and is dependent upon factors such as: the applicant’s credit score, the loan amount, and the applicant’s loan history. Paying off an installment loan can take as little as a few months or as long as several years. For that reason, some are wary of installment products; it can feel like you’re just extending how long you owe money. However, there are several advantages to taking on this type of loan.
- Breaking down the repayment into installments will make the monthly payment amount more manageable.
- The cost of the loan can be reduced by paying extra or paying the loan off early.
- Each loan payment you make helps build your credit history and your credit score.
- May have a higher total cost than a single pay product.
- May charge a pre-payment fee if you pay off the loan early (RISE doesn’t!).
- Not all installment loans report customer payments to the major credit bureaus (RISE does! We report to TransUnion and Experian to help you grow your credit history, boost your credit score, and earn access to more and less expensive forms of credit.)
OKAY, SO WHICH LOAN IS RIGHT FOR YOU?
At RISE, we’re committed to helping you achieve a better financial future by putting you firmly in control of your finances. And we believe that starts by helping you better understand your credit options.
We can’t tell you what type of loan to choose. But now that you’re aware of the differences between single pay and installment loans, you’re in position to make more informed decisions about what’s best for you and your finances. Go you!