How Installment Loans Compare to Alternative Credit Options

Emergency cash options are always good to have, but the number of choices can be overwhelming. Most people can identify what a personal loan from a bank entails but aren't so sure of what is involved when it comes to alternative financing. 

This is a quick guide to help explain some of the differences between bank loans, installment loans, and other alternative credit options. 

What Is Alternative Credit?

Alternative credit, or alternative financing, are credit options that aren't regulated within the banking system. Instead, state laws govern private lenders offering alternative credit.

Alternative loans are managed by private lending companies rather than government-regulated banks. That's a positive for those who need emergency funding because it opens credit opportunities for those with lower credit scores or none at all, those without checking accounts, those who just started back to work, and others that banks wouldn't approve. 

Another key factor in alternative lending is that most don't require a credit check. 

3 Common Alternative Credit Loan Options

There are a few basic types of alternative credit. They are pawnshop loans, title loans, and payday loans. All can be funded with money available to you by the end of the next business day. 

1. Pawnshop Loans

Pawnshop loans are loans that are secured by an item. The shop keeps the item and you can reclaim it as long as you keep on paying the monthly interest. You can't pay down the principal as with other loans. You will get the item back when you pay off the pawnshop claim. 

A pawnshop loan renews every 30 days. Those who don't pay the interest every 30 days will see their item sold.

Unlike other loans, there are no questions about why you need the money or about your ability to repay. You fill out the pawn form, show your driver's license or state ID card, and take the money offered. The money offered is a small percentage of the true value of the item.

2. Title Loans

Title loans are pawn loans based on the value of a vehicle you own. They function similarly to pawnshop loans but with some additional regulations. You need a driver's license or state ID, a clear vehicle title, and the vehicle available for inspection. Some also require a checking account. 

Title loans lenders will ask about your ability to repay and some may require proof of income. The amount approved for borrowing is based on your vehicle's value. The value is determined by an inspection by a loan representative. 

You can keep your car as the lender only holds the title during repayment. Like a pawnshop loan, you must pay at least the interest every 30 days or your car could be repossessed. Unlike a pawnshop loan, you can also pay down the principal during repayment. 

The one aspect of title loans to be aware of is that you must have a clean title. That means no one else can claim ownership of your vehicle. 

3. Payday Loans

Payday loans are a popular alternative credit alternative for those who need money fast. Private lenders all have different ranges of what they will offer in a payday loan with some starting at $100 and going up to $1,200. 

A payday loan is expected to be repaid completely by your next payday. The amount approved with a payday loan depends on how much you earn. Along with other basic requirements like a driver's license, you will need proof of payment and typically will also need a checking account for this option. 

Installment Loan Considerations

An installment loan is money you borrow and repay in equal installments over a predetermined time period, depending on the lender and loan amount. Unlike personal bank loans, installment loans are unsecured, relying solely on your signature.

When considering installment loans, it's important to recognize that they are best used for a convenient way to borrow funds and repay them in consistent installments over a predetermined time.

Advantages of Installment Loans

Installment loans offer a more structured and flexible borrowing experience than pawnshop loans, title loans, and payday loans. Unlike pawnshop loans, which require relinquishing personal items, or title loans tied to vehicle ownership, online installment loans are unsecured and require only your signature for assurance.

Also, installment loans present a practical advantage over payday loans, which demand full repayment on the upcoming payday, often leading to financial strain. With installment loans, borrowers benefit from a gradual repayment approach, evenly distributing payments over a set period, providing greater breathing room for financial stability. This highlights the distinct advantages of installment loans, where convenience meets responsible borrowing practices.

Finding a Legitimate Lender

If you are looking for a reputable Installment loan lender, Simple Fast Loans has loans starting at $200 ranging to $3,000. The amount you can borrow depends on the state where you live. No collateral is ever required and this lender has a flexible repayment schedule that you have some control over. 

To be eligible for an installment loan from Simple Fast Loans, you need to meet several essential criteria. 

• Firstly, you should be at least 18 years old and not currently serving in the military as a regular, reserve member, or on active duty.
• Additionally, being a dependent of an active-duty service member also disqualifies you.
• Beyond these military-related stipulations, there are four other fundamental requirements to fulfill. You must possess a valid government-issued photo ID, maintain an active checking account for your income deposits, hold a valid phone number, and provide a legitimate Social Security number. 

These important qualifications will help you ensure a responsible and secure lending process.

Installment Loans vs. Personal Loans

Installment loans provide a straightforward borrowing experience with predictable repayment terms, typically spanning a few months to two years. When you take out an installment loan, you'll receive a lump sum that you'll repay through fixed monthly payments. This predictability makes it easier to budget and plan your finances.

Comparing the Terms

Personal loans, on the other hand, offer more flexibility and generally more favorable terms. Available through traditional banks and credit unions, these loans typically extend from two to five years. You might have the option to secure the loan with collateral (like a vehicle or savings account) to obtain better interest rates, though unsecured options are also common.

• Installment loans. Typically have a shorter repayment period (from a few months to a couple of years) and are unsecured, meaning they don’t require collateral. Installment loans are paid back in fixed monthly payments, which makes budgeting easier for borrowers.
• Personal loans. Can be obtained from banks or credit unions, with longer repayment terms, often between 2 to 5 years. They may be unsecured or secured by collateral like a savings account or a vehicle. Personal loans generally have lower interest rates than installment loans but may require a higher credit score.

One of the key advantages of installment loans is their accessibility. Lenders typically focus more on your current income than your credit history, making these loans a viable option if you have a lower credit score or limited credit history. As long as you can demonstrate stable income and the ability to repay, you may qualify even with less-than-perfect credit.

Comparing Costs and Requirements

Personal loans tend to have more rigorous requirements. Banks and credit unions usually look for credit scores of 660 or higher, along with a solid credit history and proof of stable income. While this can make them harder to obtain, the stricter requirements often result in lower interest rates for those who qualify.

• Installment Loans. Often rely more on income than credit score, making them accessible for those with lower credit scores or limited credit history.
• Personal loans. Usually have stricter approval requirements, including higher credit scores and a stable credit history, as well as proof of income.

Consider an installment loan when you need quick access to funds and have a steady income but perhaps not the strongest credit profile. They're particularly useful for unexpected expenses or emergencies where you need certainty about your monthly payments.

Personal loans shine when you're planning larger expenses or long-term projects. If you're considering a home renovation, consolidating debt, or making a significant purchase, a personal loan's lower interest rates and longer repayment terms might be more appropriate.

Installment Loans vs. Payday Loans

Installment loans offer breathing room with their extended repayment schedules. Instead of facing a single large payment, you can spread the cost over many months. This approach helps prevent the financial strain that often comes with short-term borrowing and allows you to maintain your regular budget while repaying the loan.

Payday loans, while seemingly convenient, demand repayment by your next paycheck—typically within two to four weeks. This aggressive timeline can create significant financial stress, especially if you're already struggling with tight finances. The need to repay the entire loan plus fees in such a short time often leads borrowers to take out additional loans, creating a cycle of debt.

• Installment loans. Provide a longer repayment period with consistent monthly payments, allowing for gradual repayment. This can help avoid the financial strain that often comes with short-term loans.
• Payday loans. Require repayment by your next paycheck, usually within two to four weeks. This can create financial pressure, especially if you’re already dealing with tight finances, as you’ll need to repay the loan in a lump sum.

While installment loans may carry higher interest rates than traditional personal loans, they're generally much more affordable than payday loans. The interest charges are distributed across multiple payments, making each payment more manageable.

Comparing the Terms

Installment loans typically offer more substantial amounts, often ranging from $500 to several thousand dollars, depending on your income and state regulations. This higher borrowing capacity makes them more practical for larger expenses or emergencies.

Payday loans usually cap out at $500 or less, limiting their usefulness for significant financial needs. While this lower limit might help prevent over-borrowing, it also means you might need multiple loans to cover larger expenses, potentially increasing your overall cost of borrowing.

• Installment loans. Offer higher borrowing limits, typically ranging from a few hundred dollars up to several thousand, depending on income and state regulations.
• Payday loans. Offer smaller amounts, often capped at $500 or less, which may not be enough for larger financial needs.

Installment Loans vs. Cash Advances

Installment loans are available through various online and storefront lenders, focusing primarily on income verification rather than credit card ownership. This makes them accessible to a broader range of borrowers, including those who don't have credit cards.

Cash advances require an existing credit card and are typically limited to a percentage of your credit limit. While they offer immediate access to cash through ATMs or your credit card issuer, they're only available to credit card holders with available credit.

Comparing the Terms

With installment loans, you'll know exactly what you're paying each month thanks to fixed interest rates and structured payments. This predictability helps with budgeting and financial planning.

Cash advances often come with multiple costs: immediate cash advance fees (typically 3-5% of the amount), higher interest rates than regular credit card purchases (often 20-25% APR or higher), and interest that begins accruing immediately without a grace period. These combined costs can make cash advances one of the more expensive borrowing options.

Comparing the Costs

Installment loans provide a clear path to debt freedom with their structured monthly payments and defined loan term. You'll know exactly when the loan will be paid off and how much you need to budget each month.

Cash advances become part of your credit card balance, making it tempting to make only minimum payments, which can extend the repayment period indefinitely and result in significant interest charges. Without a structured repayment plan, it's easy to let cash advance debt linger and accumulate interest.

Feature	Installment Loans	Personal Loans	Payday Loans	Cash Advance
Repayment Term	Fixed monthly payments over a set period (months to a few years)	Long-term; usually 2 to 5 years	Full repayment by next payday (usually 2-4 weeks)	Repayment as part of credit card balance
Credit Score Requirement	Moderate to low; often based on income rather than credit	Moderate to high; based heavily on credit score	Low; credit score typically not considered	Moderate; requires a credit card
Approval Process	Relies on employment/income verification, less focus on credit score	Strict; requires high credit score and stable income	Minimal; requires proof of income and a checking account	Accessible through credit card, limited by credit card's cash limit
Typical Loan Amount	Typically $200 - $3,000 depending on lender and state regulations	Typically $1,000 - $50,000, depending on lender and creditworthiness	Usually $100 - $1,200	Limited to a percentage of credit card limit, often less than $1,000
Loan Use Case	Emergency expenses, debt consolidation, medium-term funding needs	Larger purchases, home renovations, long-term financial needs	Short-term cash needs, urgent expenses, last-resort borrowing	Quick access to cash, short-term liquidity, limited amounts

Remember that the best credit option is one that not only meets your immediate needs but also fits within your broader financial picture without creating undue strain on your budget.