Each of us has come to a financial dead-end with no funds to fall back on right away. When an emergency strikes, and you must provide money on a quick note, you may consider taking out a loan. Of course, you’ll try to lock in the most convenient rate available on the lending market.
Borrowing money online through payday loans is always fast and reliable, and you can use the proceeds to cover any cash deficit. Hence, many turn to cash advances to bridge the gap until their next paycheck.
However, not every loan product has the same features. While payday lenders offer fixed interest rates, other creditors sell variable loans. Depending on the product you choose, you will get different borrowing terms. Read on to understand how fixed and variable loans compare and which one is the right option for you.
About Payday Loans
Payday loans are short-term advances intended to help see you through the month. Approved amounts typically range from $100 to $1,000 and above in some states. Since funds aren’t significant, many people use them to cover a medical emergency or a sudden vehicle breakdown. Others borrow to organize a special event or supplement the lack of income.
Whatever your reason for applying, the process is always quick and reliable, even for people with bad credit. Applicants will receive an instant decision, and after signing the agreement, they can expect the direct deposit in 24 hours. After that, you can either get money in your bank account or on a prepaid credit card.
If you apply early in the morning on a weekday, you could get the payday loan the same business day; however, requesting cash during weekends and national holidays may prolong the funding process for a couple of days.
Payday loans must get repaid within two to four weeks, depending on the specific laws in the state. Repayments can be automatic if payday lenders get authorized to debit the loan amount, plus charges, on the due date. Or you can provide the lender with a post-dated check that includes the principal amount along with the applicable fees.
Fixed Versus Variable Interest Rate Loans
Depending on your preferences, you can either opt for a fixed or variable interest rate. With fixed interest rates, you will know how much the loan costs at the onset—you lock in the annual percentage rate (APR) so expenses cannot fluctuate. Though, you can miss out on potential savings since fixed-rate loans involve higher initial interest.
Conversely, the loan cost with a variable rate can go up and down during the repayment term. Unlike the fixed-rate alternative, variable loans are riskier since rates could jump up. Adjustments come as a response to frequent changes occurring on the market. Let’s take a look at several loan types and the interest rates they involve.
Mortgage
You can go for a fixed or adjustable-rate mortgage. Depending on the type of loan that best suits your needs, you determine the financial protection over the loan life. Most homeowners find variable rate loans complex, so they are eager to accept fixed rates with high interest.
Personal Loan
Like mortgages, you can choose a fixed or variable-rate personal loan. Yet, most personal loans carry fixed rates since borrowers prefer a consistent monthly payment. If you want a lower rate but a riskier loan, a variable interest rate can be ideal.
Student Loan
Federal student loans come with fixed rates. Alternatively, private student loans may have variable rates subject to change. Though interest starts lower, with variable loans, you will get unpredictable monthly payments.
Auto Loan
Most creditors offer auto funding as fixed-rate loans. As a result, long-term loan borrowers can enjoy the predictability of repayment and budget on time. Yet, some lenders may approve variable rates for less interest on short-term car loans.
Are Payday Loans Fixed or Variable?
Payday products are fixed-interest loans. You will know the cost of borrowing from the beginning if you take a cash advance and repay it on time. Your agreement must contain all fees and interest rates that comply with your state’s payday lending laws.
Overall, there should be no financial surprises when the due date comes. Borrowers know what obligations they undertake and must repay the loan as agreed. Failing to repay will get reported to the credit bureaus and might hurt your credit rating.
Note that fixed rates come with a higher cost. For instance, the average payday loan in the US last year amounted to $375. The borrowing cost was $75, which means an APR of 521%. For any issues, you can always contact the CFPB (Consumer Financial Protection Bureau).
Installment Versus Revolving Loans
Borrowers with revolving credit can use the approved funds until they reach a defined credit limit. Revolving loan proceeds get repaid as you re-borrow without the need to apply for a new loan. This credit is justified for consumers that pay off their balances on time and in full.
Failing to repay the outstanding amount when the month is over will roll the owed funds over to the next period. Rollovers on revolving loans tend to incur extra costs.
As for installment loans, borrowers must pay back in equal monthly payments or installments. The repayment schedule of installment loans is rigid, while the interest rate and total cost remain fixed. If you can’t make the installments as agreed, you can arrange an extension that accrues interest for the missed payments.
Student Loan
Student loans are unsecured installment loans you need to pay back in pre-defined monthly installments. Borrowers are aware of the loan amount, terms, rates, and penalties from the start.
Mortgage
A mortgage, or home loan, is another example of installment credit, but it’s a secured loan. Meaning, you need to put collateral to get approval and then make on-time monthly payments towards your balance.
Credit Card
Secured credit cards are well-known for being the most common revolving loan type. You can repeatedly borrow money up to a set limit while repaying the current balance in regular payments.
Personal Line Of Credit
Similar to credit cards, a personal line of credit is a revolving credit. You get access to a specified limit and borrow funds when the need arises. Interest gets accrued on the borrowed amount only.
Is a Payday Loan Installment or Revolving?
Payday loans are always unsecured, but they are neither installment nor revolving types of credit. So, we can place them somewhere in the middle of the range. More specifically, payday loans aren’t installment because the owed amount must get repaid all at once.
Unless you’re getting an extension or a rollover, the balance is due on your next payday.
Yet, payday loans aren’t revolving either as borrowers don’t get pre-set funds to use or repay the loan repeatedly. You don’t have a credit limit to borrow against nor bounds that reset depending on your needs.
Qualifying for a Payday Loan
Online applications for payday loans are fast and 100% safe. The process is straightforward and available 24/7. Follow the steps below to get your request considered within a brief timeframe.
- Go to our website and look for the Get Started button.
- A short loan application will open that you must complete with basic personal and financial details.
- Once you submit the request, it will hit our vast network of direct payday lenders that operate around the clock. A partner lender will contact you via email with custom offers.
- Review the rates and terms in the loan offers and decide which payday loan best meets your needs. Then, attach any supporting documents and sign the e-agreement to proceed.
- The approved money will reach your bank account the next business day.
Final Thoughts
When considering various loan types, ensure whether the interest rates you’re getting are fixed or variable. Go for fixed-rate payday loans if you are more comfortable with a stable monthly payment and a pre-defined total cost. Alternatively, if you’re willing to take on higher risk in exchange for a lower interest rate, a variable rate could be the right step.
Article contributors
Frank is a graduate of the Master's program in Economics Sciences. He has been passionate about writing in the financial niche. He enjoys discovering new ways to improve personal wealth and sharing them with his readers. In addition, Frank likes to travel and play board games.
