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
Author  Lorien Strydom
Reviewed by  Ross Loehr
Last updated: July 7, 2022
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Instant payday loans and installment loans are two of the most popular types of loans available. The two are quite different and there are several factors to consider when deciding on the best option for your situation.

When it comes to a payday loan vs installment loan, here are a few of the main differences between payday and installment loans:

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 time period with fixed monthly payments. Installment loans often have lower interest rates and no penalties for early repayment.

A big benefit is that you know exactly how much you owe upfront and can plan for the repayments 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
5KFunds4.178,476View Company
SecureSpeedyLoans 2023 2.94,324View Company
SoFi4.616,271View Company
Upgrade3.22,023View 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 need quick cash until your next payday.

Payday loans generally have quick approvals, which could even be the same day.

Here are a few popular online payday lenders:

Company Overall RatingTimes Chosen
BadCreditLoans.com3.591,392View Company
Cash Advance4.87,064View Company
MoneyKey3.931,230View Company
OppLoans4.311,496View Company

Payday Loan vs Installment Loan

There are several 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 may have 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 often have high APRs that can quickly add to your loan balance. This can make your loan very expensive and more difficult to pay back.


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 the main reason so many people get caught in a debt spiral.

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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.

Financial information reviewed byRoss Loehr - CFP®, MBA
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