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Is a Payday Loan an Installment Loan or Revolving Credit?

5 Min read | Loans

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Written by Ricardo Laizo

- Mar 17, 2026

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A payday loan is neither an installment loan nor revolving credit. It is a short-term, lump-sum loan that must be repaid in full on your next payday, usually within two to four weeks.

Installment loans are repaid in scheduled payments over months or years. Revolving credit lets you borrow, repay, and borrow again up to a limit. Payday loans do neither. You borrow a fixed amount, pay it all back at once, and must apply again if you need more money.

Below, we break down exactly how payday loans compare to installment and revolving credit, with real cost examples and better alternatives.

What Type of Credit is a Payday Loan

Payday loans are a specific type of short-term, high-cost loan, designed to be repaid in a single lump sum on the borrower's next payday, typically within 2-4 weeks.

The key characteristics that define payday loans include:

Short repayment term: Usually 2-4 weeks, until your next payday
Lump sum repayment: The full loan amount plus fees is due all at once
Small loan amounts: Typically $500 or less
High fees: Often $10-$30 per $100 borrowed
No credit check required: Approval is based on income and bank account verification
Post-dated check or electronic access: Borrower provides authorization for automatic withdrawal on due date

Payday loans are designed as a short-term "bridge" to help cover emergency expenses until the borrower's next paycheck. However, their high fees and short repayment terms often lead to a cycle of reborrowing.

According to the Consumer Financial Protection Bureau, fees typically range from $10 to $30 per $100 borrowed, with $15 per $100 being the most common charge. On a typical $350 loan, that means paying back more than $400 in just two weeks. The CFPB estimates that about 12 million Americans take out payday loans each year, and 80% of payday loans are rolled over or followed by another loan within 14 days.

Payday Loan vs Installment Loan

Installment loans are a type of credit where you borrow a lump sum and repay it in fixed, regular payments (or installments) over a set period. These loans can range from a few hundred dollars to tens of thousands, with repayment terms typically spanning several months to a few years.

Common examples of installment loans

Personal loans
Auto loans
Mortgages
Student loans

Now you know what type of credit is a payday loan and how installment loans work. To better understand how payday loans differ from installment loans, let's compare them directly.

Feature	Payday Loans	Installment Loans
Loan Amount	$100-$500	$1,000-$100,000+
Repayment Term	2-4 weeks	3 months - 7 years
APR	300-664%	6-36%
Credit Check	No	Yes
Builds Credit	No	Yes (if reported)
Repayment	Lump sum	Fixed monthly payments

It's important to note that installment loans is a broad category. It includes many different types of credit, such as personal loans, car loans, and mortgages. Because of this, the terms and conditions can vary significantly.

Always explore all your options and carefully consider all the variations before taking out any loan.

Payday Loan vs Revolving

Now that we've covered installment loans, let's look at the other side of the question: is a payday loan revolving or installment? It's not revolving credit either. Here's why.

Revolving credit is a type of credit that allows you to borrow money up to a certain limit, repay it, and then borrow again.

The most common example is a credit card. You have a credit limit, and as long as you're under that limit, you can keep using the card, paying off some or all of the balance each month.

Now, let's compare these two types of credit:

Feature	Payday Loans	Revolving Credit
Borrowing Limit	Fixed amount (typically $500 or less)	Set credit limit (can be thousands of dollars)
Repayment Term	Usually 2-4 weeks	Ongoing, with minimum monthly payments
Interest/Fees	High flat fee (e.g., $15 per $100 borrowed)	Interest charged on unpaid balance (average ~21% APR for credit cards)
Credit Check	Usually no	Yes
Impact on Credit Score	Typically none unless you default	Can help build credit if managed responsibly
Flexibility	Must repay full amount on due date	Can carry a balance (though not recommended)

Here's an example to illustrate the difference:

Let's say you need $300 for an emergency car repair.

With a payday loan, you might borrow $300 and owe $345 in two weeks (assuming a fee of $15 per $100). You must repay the full $345 on your next payday or risk additional fees and potential legal action.

With a credit card (revolving credit), you could charge the $300 repair. If you pay it off in full when the bill comes, you'd owe no interest. If you can only afford to pay $100, you'd carry a $200 balance and owe interest on that amount (about $3.50 at 21% APR). You could then continue making payments over time.

For those with poor credit who might not qualify for traditional revolving credit, secured credit cards can be a good alternative. These require a cash deposit as collateral but can help you build credit over time.

Payday Loans Are Banned in Some States

Payday lending is prohibited or heavily restricted in 18 states and Washington, D.C., including New York, New Jersey, Georgia, and Arizona. Before applying for a payday loan, check whether your state allows them. Even in states where payday loans are legal, maximum fees and loan amounts vary.

Alternatives to Payday Loans

If you're considering a payday loan, you likely need cash fast. But the high cost of payday loans (often 300-400% APR) makes them one of the most expensive ways to borrow money. Here are options that may cost you far less.

Personal loans: Borrow $1,000-$50,000 at 6-36% APR with fixed monthly payments over 1-7 years. Even borrowers with fair credit can qualify for rates far below payday loan costs.
Bad credit loans: Designed for borrowers with FICO scores below 580. Rates are higher than standard personal loans but still a fraction of payday loan fees.
Secured credit cards: Require a cash deposit but let you build credit over time while having access to revolving credit for emergencies.
Credit union payday alternative loans (PALs): Federal credit unions offer small loans of $200-$2,000 with a maximum 28% APR and application fees capped at $20.
Payment plans: Ask your creditor or service provider for an extended payment plan before turning to any high-cost borrowing.
Cash advance apps: Apps like Earnin or Dave offer small advances on your paycheck, often with no interest (just optional tips).

Check out the best credit cards in 2026

Frequently Asked Questions

Is a payday loan an installment or revolving loan?

A payday loan is neither. Installment loans are repaid in fixed monthly payments over time, and revolving credit (like credit cards) lets you borrow and repay repeatedly. Payday loans require full repayment in a single lump sum on your next payday, which puts them in their own category of short-term lending.

What type of credit is a payday loan?

A payday loan is classified as short-term, single-payment credit. You borrow a small amount (usually $500 or less), and the entire balance plus fees is due in one payment within two to four weeks. Unlike installment credit, there are no scheduled partial payments. Unlike revolving credit, you cannot reborrow from the same loan.

Are payday loans installments?

No. True installment loans split the repayment into multiple scheduled payments over months or years. Payday loans require one lump-sum payment. However, some lenders now offer "payday installment loans" that do allow repayment over several pay periods. These are technically installment loans, not traditional payday loans.

What is classified as a payday loan?

A payday loan is a small-dollar, short-term loan (typically $100-$500) with fees of $10-$30 per $100 borrowed. It must be repaid in full on your next payday. Approval is based on income and bank account verification rather than a credit check. The effective APR on these loans typically ranges from 300% to 664%.