Installment Loan vs Payday Loan
In economic practice, there are concepts that are similar in their purpose, but at the same time have certain differences. For example, it may seem to a person who is not associated with this field that a installment loan and a payday loan have the same meaning, that is, they mean the same action. But this opinion is mistaken.
Definition of an installment and payday loan
An installment loan is a relationship between legal entities, according to which one party transfers any movable and immovable property to the temporary possession of the other party. At the end of the agreement term, the borrower is obliged to return the property to the lender, and it may have a certain rate of wear and tear, but no more.
A payday loan is a contractual relationship in which a legal entity transfers funds for use to another on terms of urgency and repayment. This means that the borrower is obliged to repay the same amount within a certain period.
Installment Loan vs Payday Loan
When it comes to talking about a loan, first of all, it implies a cash loan. This is not a decisive difference, as the loan can also be monetary as well as property. For example, some enterprises practice lending money to employees without interest for financial needs. The key difference here is the gratuitousness of the depositing of money for use.
Payday loans are more widely represented in the financial market and are the main product of microfinance organizations. Today it is possible to get a payday loan on a card, in cash, secured by a car. It is no secret that MFIs make money on this and are interested in capitalizing on such financial relationships. Interest-free loans can be used only in promotional offers or to develop the popularity of the enterprise.
In all financial relations between individuals and legal entities, some kind of solvency confirmation is required. Credit history can tell a lot about registered debts. Installment loans entered into verbally do not require checking the borrower’s credit history and are usually attributed to friendly relations between the parties. In a financial institution, a potential debtor may be asked to provide certificates from the working place to confirm solvency. The installment loan can be guaranteed by the presence of property, if you use it as collateral.
If the subject of the installment loan is movable or immovable property, goods united by generic characteristics, then most often in the agreement you can find extra terms on the monetary equivalent of the subject of the loan. The loan presupposes the return of the goods that were lended. Most often, the objects of the loan are land plots, buildings, structures, vehicles and other items.
|Payday loan||Installment loan|
|The loan is most often cash.||The loan can be either cash or property.|
|To issue a loan, a borrower usually goes through a credit check procedure.||Loans are issued more often without any checks.|
|The loan is repaid in cash or a product of similar quality.||In case of an installment loan, the item that was borrowed is returned.|
The subject of the installment loan is movable and immovable property, the subject of the loan is cash and non-cash funds.
The payday loan can be urgent or indefinite, and the loan is only an urgent transaction.
The subject of the payday loan is always paid back in full, the subject of the installment loan may have a slightly lower value due to its deterioration during operation. Both parties are aware of this, and therefore the permissible value of the property depreciation rate is indicated in the agreement.
Tags: finance, installment loans, personal loans