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Jul 24, 2019

Advantages and Disadvantages of Payday Installment Loans

There are two types of payday loans. The more conventional payday loan has to be repaid in one month. The date of repayment is usually the next payday. This is why it is called payday loan. For many years, payday loans have been available in its original form. Borrowers could take out a few hundred pounds and then repay the entire sum along with interest on their next payday. The repayment has always been automated. It is not up to the borrower to initiate the transaction. The repayment fails if there is insufficient fund in the bank account of the borrower.

In recent times, payday installment loans have become more popular. There are obvious reasons for that. Whenever a borrower has to repay the entire loan amount along with interest from their next paycheck, there is a direct adverse effect on their financial condition for the subsequent month. It could be a fortnight if a person gets paid twice a month. Anyone who borrows a substantial sum of money that cannot be spared entirely from the next paycheck will struggle for the next month. This propels many people to borrow money again. Hence, the seeds of a debt cycle are planted and there may come a time when a person will get into a financial crisis.

Payday installment loans are short term loans. The entire loan amount does not have to be repaid in one month. There could be a period of three months. Some lenders may be willing to offer a repayment term of a hundred and eighty days. Payday installment loans rarely have a repayment term spanning a year, unless the amount borrowed is several thousand. Not many people will qualify for several thousand pounds as payday loans. They are more like unsecured short term loans. While the opportunity to repay over a period of three to six months definitely reduces the monthly liability, there is an impact on the total interest levied. Hence, there are some advantages and disadvantages of payday installment loans.

The annual percentage rate charged on payday loans can be fixed or variable. In case the loan is repaid in one month and as a total lump sum including the interest, the annual percentage rate cannot be variable. It is the same rate that gets levied. Payday installment loans with several months in the repayment term can have variable rate. Even if the rate is fixed, the total computable interest is going to be much more than the interest owed in one month. Three to six months worth of interest can be much greater than the interest owed in one month, especially with payday loans that usually have a high annual percentage rate.

Despite the higher interest that is inevitable, payday installment loans make sense since borrowers have more room to breathe and a bit more cash at hand to spare every month through the repayment period. Consider the different terms of payday installment loans carefully and compare more than two lenders to avoid late fines and other penalties.

PayPony has Simplified Payday Loans and Short Term Loans
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