Payday installment loans, pros, and cons? For some time now payday lenders have introduced installment loans versus traditional payday loans. An installment loan is just how it reads “a loan that is paid back in installments” with scheduled payments. However, in the past installment loans were reserved for mortgage lenders, private lenders, and the banking industry. They were often called signature loans or revolving loans and were unsecured without collateral. Terms usually ranging from 1 to five years. Additionally, the loans could be used to pay off credit cards, medical expenses, and possibly education expenses. Borrowers would pay a reasonable interest rate based on their credit history.
Payday Lenders Introduce Payday Installment Loans
CEO Daniel Feehan of Cash America International was quoted as saying “We’re trying to balance the right consumer demand against what the regulators and what consumer groups are complaining about,”. Payday lenders saw the need and started their own version of these types of loans. Lenders could see borrowers getting trapped in a cycle. Once their loan was paid off they would continue to re-borrow time and again. This new service would allow borrowers to pay off their loan over time. Other benefits include a short application, instant decision on your loan, along with next day cash. Where on the surface they may look like a traditional installment loan there are significant differences.
The Difference Between Soft Credit Check and Credit Check
For instance, a payday lender that provides installment loans does not make a traditional credit check with the big three Experian, Transunion, or Equifax. They make what they call a “soft credit check”. Companies like DataX, Clarity, Micro Built and TeleTrack gather information reported by payday lenders. That information is stored until someone makes an inquiry. For example; if you get a payday loan and pay it back on time, that data is reported. If you get a payday loan and default on your loan that information is also reported. They also verify other information such as;
- Your Identity
- Repayment history
- Military status
- Number of outstanding loans
- Verify your ability to pay
- Address verification
- Bank Information
- How many inquiries you’ve made…and more
Your information is never reported to the credit bureaus nor will you ever see a payday installment lender show up on a credit report. Though some payday installment lenders have started offering installment loans based on conventional credit history for the purpose of charging less interest to the credit-worthy customers.
Payday Installment Loans Have A High-Interest Rate
Interest rates are high %200 to %700 annual percentage rate (APR). This is another big difference from traditional installment loans. Borrowers may have the convenience of affordable payments over a period of time but may end up paying more than double the amount of interest, if not paid off sooner rather than later. These loans are usually small micro loans $200 to $700 dollars with a duration of three to six months. Some payday lenders like Speedy Cash and CashNetUSA are offering installment loans for up to $2600. Much depends on the state the borrower resides in, with each state regulating interest rates and the amount you can borrow.
Opposition To Payday Installment Loans
Those opposed to payday installment loans have come out against them. Lauren Saunders, managing attorney at the National Consumer Law Center states “Some installment loans have exorbitant rates, deceptive add-on fees and products, loan flipping, and other tricks that can be just as dangerous”. Rates are high but for deceptive add-on fees, and products, loan flipping, and other tricks have NEVER been documented.
Another claim says that the vast majority of business generated by payday installment loan lenders is repeat customers. Furthermore, they claim that the majority of their marketing focuses on previous customers. For any business that has repeat customers is an indication that customers are being cared for. Additionally, a marketing campaign that focuses on previous customers is what any good business would do. What business model would want their customers to find another place to do business. For any sound business model, it’s better to keep a customer satisfied than to find a new one.
The Pros and Cons
The pros for a payday Installment loan.
- Application time take 3 to 5 minutes
- You can pay your loan with scheduled payments
- Never a credit check with the credit bureaus
- Instant decision on acceptance
- Small loans $200 to $1000
- Same day or next day cash
The cons are simple.
- Interest is very high and it is a good reason against taking out an installment loan, but the choice is yours.
If interest rates were 10% there would never be opposition nor would there be payday installment lenders. Rates are high because the risk is high. There are many high-quality lenders such as Money Tree, Lendup, CashNetUSA, Speedy Cash and much more that have a sincere passion to see their customers succeed. Everyone should have a right to choose what is right for their financial situation.