Difference Between Installment Loans and Payday Loans

Which is Better for You: a Payday Loan or Installment Loan?

You are probably familiar with the concept of a personal loan. Personal loans are a type of credit that you can access to help with making purchases (like a new car or to help pay medical bills). You can also use a personal loan to consolidate other bills with high-interest rates as they generally have lower interest rates than credit cards.

Two of the more common types of personal loans that you'll come across are payday loans and installment loans. But what are the differences between these loans? What are the pros and cons, and which one is better?

Learn all of this and more about the differences between payday vs installment loans, below. 

What's the Difference Between a Payday Loan and Installment Loan? 

An installment loan is a type of loan for a set amount that can include anything from a mortgage to car to more personal loans from banks. Installment loans are usually longer term (like 30 years for a house and six years for a car) and require payments made in installments of a set amount of money paid at a set time (usually once a month). These usually require a credit check to get an installment loan.
 
Typically, a payday loan is not an installment loan – rather it’s a single-term loan with shorter payment terms and higher interest rates. They are typically for $1,000 or less and due back in about a week or two (or your next "payday"). Payday loans do not require a credit check.

Pros of an Installment Loan 

Is an installment loan right for you? Let's take a look at the pros: 

• Installment loans offer quick access to money, which, in turn, gives you peace of mind knowing you can take care of your unexpected expenses. 
• Payments on these kinds of loans are predictable, which means you can add them to your budget more easily. 
• They are a good alternative to taking out more high-interest credit cards or adding more debt to credit cards you already have. 

Cons of an Installment Loan

There are very few cons to taking out an installment loan, but you should consider: 

• Late or missing payments on your installment loan could lower your credit score and lead to bad credit. 
• Different loans have different terms, and many installment loans accrue interest on a daily basis.
• There's no adding on to installment loans if you need more money, except in some cases with refinances.
• Longer payback periods. 
• Credit checks are required. 

Pros of a Payday Loan 

Payday loans may seem like a great quick fix, but they have very few pros: 

• Quick access to small amounts of cash. 
• Few requirements to apply. 
• No credit check. 

Cons of a Payday Loan

Consider the following cons before taking out a payday loan: 

• To pay back a payday loan, lenders will usually ask you for a postdated check on the due date of the loan or for access to your bank account so they can get the money electronically on your due date. 
• Higher interest rates (they can 400% APR and higher).  
• Many people get stuck in a payday loan trap where they keep pushing the loans and constantly need payday loans to pay off previous payday loans.

Installment Loan vs. Payday Loans: Which is Right for You?

So now that you've learned all about installment loans vs payday loans, which is right for you?

While there's no credit check and very few requirements for taking out payday loans, these should be seen as red flags instead of good things. Yes, they're very easy to get, but also very easy to get sucked into a cycle of getting "quick cash" that snowballs into a financial situation that's very hard to get out of.

Only take out a payday loan if you are 100% sure you can pay it in full, on time. Otherwise, consider other options like installment loans.

Installment loans are a great loan option because you can borrow money and pay it back over time, instead of right away. Applying for installment loans from Check `n Go is a simple and secure process. You can see the money you need deposited directly into your bank account as soon as the next business day. Plus, you can choose the payback terms that best fit your lifestyle and budget. 

Are you ready to apply for an installment loan and start working toward financial peace of mind?*

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FAQs: Installment Loan vs. Payday Loan

Are installment loans the same as payday loans?

The main difference between payday loans and installment loans is that typically, payday loans have a much shorter payment term and higher relative finance charges

Why is it important to know the difference between payday loans and installment loans?

It’s important to know the difference between installment loans and payday loans because one or both may not be the right fit for you at any given time. To see the types of loans offered in your area and find out which one of our services is the best fit for you, visit our Rates and Terms page, or visit or call the retail store nearest you.

Do payday loans require collateral?

With payday loans, you don’t need to give us any collateral. Payday loans are considered a form of unsecured debt. Therefore, they are typically accompanied with higher interest rates compared to other types of installment loans.