These days it seems like there are more and more different types of loans and lending options all dressed up in fancy packaging and with names to match … none more so that monthly payday loans or 12 month payday loans. The thought of spreading the cost of a payday loan into monthly instalments is surely almost a contradiction in terms so just what are monthly payday loans – surely they are just instalment loans in disguise?
First of all let’s decipher exactly what a standard payday loan actually is. Quite simply a payday loan is like an advance on your wages … but repayable with a substantial chunk of interest. It provides almost instant access to a cash loan which can be deposited into your bank account in just a few minutes provided that you meet the eligibility criteria as set out by the lender. A simple online application and the cash can be with you in a flash and often even if your credit rating is not perfect.
Before the loan is processed though it is normal that you agree a repayment date which will coincide with the next time you are paid, you will also agree the interest rate which can be pretty high. On the agreed date the loan is repaid in full and including the interest and that’s the end of the loan.
When you look at it as simply as that you will understand exactly why the name payday loan is so appropriate – a short term, high interest instant loan to bridge the gap until payday. So what on earth is a monthly payday loan, a 3 month payday loan or a 12 month payday loan or an instalment payday loan?
To be quite honest they are not really payday loans at all but are really pretty standard instalment loans which offer an alternative to a payday loan. They can offer the same fast access to a small cash loan but instead of the loan having to be repaid in full and in one repayment the cost of borrowing can be spread over several months with 3 months, 6 months or 12 months being typically advertised.
The repayment of a payday loan can often leave the borrower with a further financial hole to fill and often results in a further loan being taken out – this type of instalment loan will avoid the trap but comes at a cost! The interest rate on these instalment loans can be high, sometimes very high, especially if you have a bad credit history, so keep a very close eye on this.
Why use the word payday in the name then – you’ll have to ask the lender that but to us it seems as though payday loans are so popular these days that the lenders are really just playing on the name and highlighting a different option.
So, don’t be confused – a payday loan tides you over for just a few weeks before being repaid in full the next time you are paid by your employer. A 3 month, 12 month or instalment payday loan is more of a standard loan whereby you borrow now and repay in monthly instalments spread over an agreed term – don’t be mislead.