Installment Loans vs Payday Loans. What’s the Difference?
I get at least one call every day along the lines of, “What’s the difference between a payday loan and an installment loan.”
They say a picture is worth a thousand words so here you go.
Typical Installment Loan Breakout from Page 248 of our “How to Start a Personal Loan Business:”
Consumers borrow between $300 and $1,200.
The standard repayment schedule for installment loans offered is 20 payments over the course of 10 months, with one payment made every two weeks.
For each installment payment, a consumer must pay a “service fee” (often $30 for every $100 of principal outstanding) and five percent of the original principal.
As a result, lenders typically offer loans with annual percentage rates of between approximately 440% and 950%.
For an $800 loan, a typical loan contract requires the consumer to repay a total of approximately $3,320 over the course of ten months.
The following excerpt is from a typical loan document prepared for an installment loan in the amount of $800 originated by a lender and made to a borrower:
NOTE: For an in depth discussion and sample docs and contracts, visit PaydayLoanUniversity