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Payday Loan vs Installment Loan: The Differences

Key Takeaways:

  • Payday loans have a higher APR than installment loans
  • Payday loan amounts are usually smaller than installment loans
  • Borrowers often become dependent on payday loans

Instant payday loans and installment loans are two of the most popular types of loans available. The two are quite different and installment loans are most often the preferred choice.

When it comes to a payday loan vs installment loan, here are just a few of the differences between these two loan types:

Payday LoansInstallment Loans
Usually small amountsCan be large amounts
Very high APRAPR depends on the loan type
Minimal requirementsMore requirements like credit score
Can be rolled over for an additional feePayback is over a set period
Borrowers often become dependent on these loans to make ends meetNot designed to depend on them indefinitely

What Is An Installment Loan?

Installment loans are money that you borrow and repay over a specific period of time with fixed monthly payments. Installment loans often have lower interest rates and no penalties for early repayment.

You know exactly how much you owe upfront and can plan for it accordingly.

Examples of installment loans include personal loans, auto loans, mortgages, and student loans. Here are a few popular installment loan providers:

Company Overall RatingTimes Chosen
5KFunds4.258,542View Company
SecureSpeedyLoans3.51,203View Company
SoFi4.514,050View Company
Upgrade1.0796View Company

What Is a Payday Loan?

Payday loans are short-term, small-dollar loans that you repay with your next paycheck. The repayment terms on payday loans are usually two to four weeks and it’s a good option if you are in need of quick cash until your next payday.

Payday loans often have quick approvals, as soon as the same day.

Examples of online payday lenders:

Company Overall RatingTimes Chosen
BadCreditLoans.com3.676,171View Company
Cash Advance4.5950View Company
MoneyKey3.727,851View Company
OppLoans2.55,225View Company

Payday Loan vs Installment Loan

There are some noticeable differences between installment loans and payday loans, including:

  • Loan amounts: Payday loans are usually for smaller amounts (typically up to $1,000) while installment loans often go as high as $50,000.
  • APR rates: Installment loans usually come with lower APRs than payday loans. Payday loans can come with APRs in triple-digits.
  • Repayment periods: Installment loans can be paid off in several months or years, while payday loans need to be paid back with your next paycheck.
  • Credit checks: Lenders will check your credit score when assessing your application for an installment loan, while the creditworthiness requirements are typically lower with payday loans.

Should I Get a Payday Loan Or An Installment Loan?

If your credit score allows, always opt for an installment loan over a payday loan.

This is even more important if you want to borrow a larger amount of money, or need a longer repayment period with lower installments.

Payday loans come with high APRs that can quickly add up, making your loan very expensive and hard to pay back.

FAQs

Is a payday loan installment or revolving?

Loans are typically categorized in one of these two categories: installment or revolving, depending on how the loan should be repaid.

So, is a payday loan installment or revolving? Actually, it’s neither.

A payday loan isn’t an installment loan as borrowers need to repay the loan amount in full on a specific date. It’s also not a revolving loan, as borrowers can’t repeatedly loan money against it and pay it back again.

Since the full loan amount is due at once with a payday loan, borrowers often struggle to repay it; this is why so many people get caught in a debt cycle.

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    Lorien is the Country Manager for Financer US and has a strong background in finance and digital marketing. She is a fintech enthusiast and a lover of all things digital.

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    Last Updated: June 3, 2022

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