Is a Payday Loan Installment or Revolving?

Posted on October 26, 2022 in Loans

Payday loans are not installment loans or revolving credit lines. Instead, payday loans are cash advances given out for a short period of time that come with exorbitant interest rate charges. Payday lenders typically target borrowers who have poor credit and are out of other loan options. These type of short-term cash loans typically necessitate payment authorization from a checking account and are expected to be repaid in full from the borrower’s next paycheck, which is usually within two weeks.

If you’re searching to find out if a payday loan is installment or revolving, then you’re probably already considering getting one. Before you do, there are some important things you should know. Firstly, they’re often used as a quick fix to cover expenses between paychecks, and should only be used as a last resort due to the fact that these short-term cash loans carry such a high interest rate. It is crucial that you inform yourself about any type of loan before you sign on the dotted line, and the first question you might have about a payday loan is whether it is an installment or revolving loan. We are here to answer that question and more in this blog post, so let’s get started!

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Is a Payday Loan an Installment Loan?

No, a payday loan is not an installment loan. While a payday loan is generally paid back in a single lump sum when you get your next paycheck, an installment loan is funding that is paid back via monthly payments over a period of time. When comparing revolving vs installment, you’ll want to understand that how much you pay in total with an installment loan will depend on how much you borrow and what your interest rate is. Say you were to borrow $10,000 for five years with a 6% interest rate; that means you would pay $193.33 a month for sixty months. Different types of installment loans include personal loans, auto loans, and mortgages.

Is a Payday Loan a Revolving Line of Credit?

Much like a payday loan is not an installment loan, it is also not a revolving line of credit. We have covered above that a payday loan is typically paid back in a single lump sum that comes out of your next paycheck. A revolving line of credit is a credit card, which has a limit that you use up, pay back, and continue to use. For example, say you have a credit card with a limit of $1000 and you spend $200, so you have $800 in credit left on your card. But if you pay off the $200 in your next billing cycle, you have $1000 back to use in credit. It “revolves” as you use it and pay it back, hence the name.

Now that you’ve learned that payday loans are neither revolving nor installment loans, you may be wondering what your best short-term loan option is if you don’t want to open a new credit card.

Is a Payday Loan or an Installment Loan Better?

Generally speaking, a payday loan is only meant to cover emergency expenses until your next payday. That is why they are small and short term, with high interest rates. These types of loans can be difficult for some people to pay back as planned, which is when you can fall into the payday loan trap. Essentially what that means is you cannot pay the loan back when payday arrives, so it gets rolled over to your next paycheck. This cycle often continues for a while, with additional fees each time.

An installment loan often comes with a lower interest rate than a payday loan. You are also able to pay back the amount you borrowed over a much longer period of time, from a few months to a few years depending on the terms. This means that with an installment loan, as opposed to a revolving line of credit or payday loan, you make smaller payments rather than a single large payment, which can be easier to fit into your budget.

How Do I Get an Installment Loan?

If you decide you want to take out an installment loan, you should check your credit score. Once you know what your score is, you will have a better idea of what loans you can qualify for, or what areas of your credit you need to improve before you apply. Then, research your loan options, starting with a local bank or credit union. Once you find an installment loan you like, you can usually apply for it online if you have the following information:

  • Driver’s license and/or Social Security number.
  • Checking or savings account information.
  • Information about your monthly income and expenses.

Some lenders may also ask you what you plan to do with the money from your loan, so be prepared to answer that question as well. Usually online loan applications are processed fairly quickly, so you may get a decision on your loan within minutes.

What Are Some Alternatives To Payday Loans?

Turning to payday loans is completely understandable, especially in a time of financial crisis. But a payday loan is at best a short term solution that does not really solve the problem, and can sometimes make things worse. Thankfully, there are a few different options available such as installment loans and revolving lines of credit if you need to finance a necessary expense:

  • Installment loans. We have already covered the basics of what an installment loan is and how to get one. This can be a good option if you need a larger amount of money that you will be able to pay back each month. Plus they do not typically have the high interest rate that comes with a payday loan.
  • Revolving line of credit/credit cards. While credit cards must be managed wisely in order to keep yourself from creating a debt problem, they are much more flexible than a payday loan. If you pay off your credit card balances regularly and manage your account responsibly, it will be a less expensive option than a payday loan in the end.
  • Cash advance apps. If you need a small amount of money in the short term, it may be best to check out some cash advance apps like Albert. If you are traditionally employed or an on demand worker, you can usually borrow at least $100 against your next paycheck. While this sounds similar to a payday loan, these apps typically do not charge interest, and some of them do not even have fees.

The Bottom Line About Payday Loans

A payday loan can potentially be useful if you are in a serious financial pinch, but only if you can pay them back as soon as possible. A missed payment will most likely lead to several, until you wind up stuck in the payday loan trap. Due to payday lenders being able to automatically withdrawals funds from your account, once you get to this stage you’ll likely be searching for ways how to legally stop payday loans from debiting your bank account.

Keep in mind that there are payday loan alternatives out there such as installment loans or revolving credit lines that have much lower interest rates and come with less risk. Consider all of your options carefully before you commit to a payday loan – there are limited options for assistance or government help with payday loans once you’ve committed.

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