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Installment loans seem like a kinder, gentler version of their “predatory” cousin, the payday loan. But for consumers, they may be even more harmful.
Use of the installment loan, in which a consumer borrows a lump sum and pays back the principal and interest in a series of regular payments, has grown dramatically since 2013 as regulators began to rein in payday lending. In fact, payday lenders appear to have developed installment loans primarily to evade this increased scrutiny.
A closer look at the differences between the two types of loans shows why we believe the growth in installment loans is worrying – and needs the same regulatory attention as payday loans.
At first glance, it seems like installment loans could be less harmful than payday loans. They tend to be larger, can be paid back over longer periods of time and usually have lower annualized interest rates – all potentially good things.
While payday loans are typically around US$350, installment loans tend to be in the $500 to $2,000 range. The potential to borrow more may benefit consumers who have greater short-term needs.
Because installment loans are repaid in biweekly or monthly installments over a period of six to nine months, lenders payday loan Martins Ferry online say consumers are better able to manage the financial strain that brought them to their storefront in the first place. Continue reading Payday lenders have embraced installment loans to evade regulations – but they may be even worse