Payday Loans vs. Installment Loans

When money is tight and a bill can’t wait, two options come up fast: a payday loan and an installment loan. They sound alike. They work very differently.

Here’s the short version. A payday loan is due all at once, usually in two to four weeks. An installment loan is paid back in smaller, scheduled payments over time. That one difference affects your budget, what happens if you fall short, and whether the loan can help your credit.

Payday Loans vs. Installment Loans at a Glance

	Payday loan	Installment loan
How you repay	One lump sum, usually in 2 to 4 weeks	Several scheduled payments
Typical amount	A few hundred dollars	Depends on the lender and your state
How cost is charged	A flat fee per $100 borrowed	Interest over the life of the loan
If you can’t pay on time	Rollover fees or another loan	A late fee may apply, so call your lender
Credit reporting	Usually not reported	Depends on the lender

What Is a Payday Loan?

A payday loan is a small, short-term loan. You borrow a few hundred dollars and pay it back, plus a fee, around your next payday. Instead of a regular interest rate, lenders usually charge a flat fee for every $100 you borrow.

That fee looks small, but the loan is short. The Consumer Financial Protection Bureau (CFPB) found that a typical $350 payday loan carries a fee of about $15 per $100 and comes due in two weeks. That works out to an annual percentage rate (APR) of roughly 391%. APR is the yearly cost of a loan, including fees, shown as a percentage.

What Is an Installment Loan?

An installment loan gives you a set amount of money up front. You pay it back in equal, scheduled payments until the balance reaches zero. Car loans and mortgages count too, but small-dollar installment loans are the ones people compare with payday loans.

You know your payment amount, your due dates, and your payoff date from day one. Nothing rolls over. For more detail, read our guide to what an installment loan is and how to use one. Comparing it to buy now, pay later? See installment loan vs. BNPL.

How Do You Pay Each One Back?

Payday loans ask for everything at once. Plenty of borrowers can’t cover the full amount and still pay rent, so they roll the loan over or take out another one. The CFPB has found that about 80% of payday loans are rolled over or followed by another loan within 14 days.

An installment loan spreads the cost out. Payments often line up with your paydays, so they’re easier to plan around.

What Does Each One Really Cost?

We’ll be direct: both are expensive ways to borrow. Neither is the cheapest option out there, and we’ll cover cheaper ones below.

Here’s how a $500 payday loan can play out at the CFPB’s typical fee of $15 per $100:

• If you repay it on time in one payment, you owe $575. That’s the $500 plus a $75 fee.
• If you can’t, you can pay another $75 to roll it over. You still owe the original $500.
• The CFPB estimates that rolling over a $300 loan for four months adds up to $360 in fees, and you’d still owe the $300.

Installment loans are priced differently, and over a longer time. Here’s a real example from our Texas page: a $500 loan repaid in ten biweekly payments of $133.74 comes to $1,337.40 in total, with a 564.24% APR. Rates vary by state and loan amount, so borrow only what you need and check your state’s terms before you apply.

So which costs less? On paper, a payday loan repaid in full and on time costs less. In real life, that’s the hard part. Pew Charitable Trusts found that the average payday borrower pays about $520 in fees to borrow $375 over and over. With an installment loan, your total is fixed and shown before you sign, and there are no rollovers. At Wise Loan, you can also pay early with no prepayment penalty, which can cut the interest you pay.

Which Is Easier to Get With Bad Credit?

Both are built for people whose credit isn’t perfect. At Wise Loan, good credit isn’t required. We look at your income and whether you can handle the payments, though your credit history can still affect the terms you’re offered. Our bad credit loans page explains more, and this post covers getting approved for an installment loan with bad credit. Self-employed? See installment loans for gig workers.

Will Either One Help Your Credit?

Payday loans usually won’t. Lenders generally don’t report on-time payments to the major credit bureaus, so the loan doesn’t help rebuild your credit.

Installment loans depend on the lender. Wise Loan reports payments to Equifax and Experian, so on-time payments can add positive history to your credit reports. Missed payments work the other way. See how installment loans show up on your credit report.

Which One Is Right for You?

Neither is meant for everyday expenses. Both are for one-time emergencies.

• A payday loan may fit if you need a small amount and you’re sure you can repay all of it on your next payday without leaving another bill unpaid.
• An installment loan may fit if you need more time, you want a set payment schedule, or you’d like on-time payments reported to the credit bureaus.
• Skip both if a cheaper option is available, or if the gap in your budget keeps coming back. A loan can’t fix a monthly shortfall. Try our three-day financial reset first.

Cheaper Options to Check First

Before you borrow from anyone, look at these:

• Credit union payday alternative loans (PALs). Federal credit unions can offer these with APRs capped at 28%. Some go up to $2,000, with up to 12 months to repay. You usually need to be a member first.
• A payment plan with the biller. Utilities, doctors, and landlords often agree to a short delay or a split payment if you ask before the due date.
• An advance from your employer. Some employers offer one.
• Local help. Dial 211 to find community programs for rent, utilities, and food.
• Family or friends. Put it in writing.

Where Wise Loan Fits In

Wise Loan doesn’t offer payday loans or rollovers. We offer online installment loans with fixed payments on a set schedule.

• Amounts: $200 to $1,500 for first-time borrowers, and up to $3,500 for returning customers. Minimums vary by state.
• Before you sign: you’ll see your loan amount, APR, payment amount, and total repayment.
• Funding: if you’re approved before 5:30 PM CT, funds can arrive the same business day. With a qualifying debit card, instant funding can take as little as 15 minutes.
• Where: we’re licensed in eight states. Not in one of them? We partner with a network of lenders and may still be able to help.

If you ever can’t make a payment, call us at 1-800-516-7840 before your due date. A loan manager will work with you on payment arrangements. You can also read what happens if you don’t pay an installment loan.

Wise Loan’s installment loans are an expensive form of borrowing, meant for short-term needs and not as a long-term fix. Want to see how it works first? Check our how it works page, then apply online when you’re ready.

Frequently Asked Questions

Is a payday loan an installment loan?

No. A payday loan is usually repaid in one payment, while an installment loan is repaid over several scheduled payments.

Can I get a payday loan or installment loan with bad credit?

Often, yes. Both types are available to people with limited credit. Approval depends on the lender and usually on your income and ability to repay.

Do installment loans build credit?

They can, if the lender reports to the credit bureaus. Wise Loan reports to Equifax and Experian.

What if I can’t repay a payday loan?

Call the lender before the due date and ask about an extended payment plan. Some states require lenders to offer one. Try to avoid rolling the loan over again and again.

Disclosure

The recommendations contained in this article are designed for informational purposes only.  Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.