Can payday loans be taken as installment loans?
Few months back payday loans are meant for maximum 30 days term, but now in changed regulations these short term loans can be used as installment loans.
As name suggests payday loans are based on borrower’s monthly income and are to be repaid in next salary. The main drawback of this system is that loan amount can not exceed the monthly savings of the borrower. So loan amount of payday loan is limited to small sum.
The concept of installment loan in payday loan has increased the loan corpus for the borrower. Now loan seeker can apply for high sum (some time it may be more than one month salary) and he can pick any number of monthly repayment schedule as per his financial needs.
The monthly loan installment is EMI of loan plus interest and due date is taken as salary day of the borrower. One mandate is taken from the borrower for auto debit of loan installment from his bank account.
Why installment unsecured loans are costly?
Unsecured loans are approved by the lenders without any guarantor or security so the fall in high risk category of loans. To mitigate possible losses lenders charge high interest rates. As installment loans are more than one month term so interest rate is always more than old one month payday loans. FCA has fixed cap for payday loans as 0.8% per day so as number of day increases the total repayable interest will also rise. So payday loans are not good for long term. For long term loans secured or personal loans are the best.