Thinking about getting a payday loan but don't quite know how it works? Is it similar to a car loan with fixed repayments or a credit card that keeps tapping your account? Well, it's important to know, because one loan structure can trap you in debt cycles and the other gives you a potentially clear exit path.

This guide explains payday loans, whether they are installment or revolving, the pros and cons of these loan structures, and how tools like earned wage access (EWA) can be a better, no-debt alternative.

Payday loans are small-dollar, short-term loans used when money runs out before payday or between paychecks. These loans typically range from $100 to $1,500 and come in handy when unexpected expenses — like a car repair or medical bill — arise.

Traditional payday loans work through a simple but costly process: You borrow a lump sum and write a postdated check or authorize an automatic debit from your bank account to repay the loan amount — plus fees — within two-to-four weeks of your next payday.

While payday loans offer quick cash with minimal paperwork, the costs can be steep, with fees that translate to annual percentage rates (APRs) that start at 300% but can range from 391% up to more than 600%. That means borrowing $300 could actually cost you $345 or more in just two weeks.

Most payday loans are neither traditional installment loans nor revolving credit. They're typically structured as single-payment loans due in full on your next payday.

However, the lending landscape has evolved, and some payday lenders now offer loans that resemble installment loans in that they can be repaid over several months with fixed payments. But these installment-type payday loans can push borrowers into a cycle of debt. Because once the initial loan is paid off, borrowers can easily reapply for additional funds.

Payday lenders are also dipping into revolving credit structures. Revolving payday loans work like credit cards. You get a credit limit and can borrow again as you repay, often with fees added each time. You have ongoing access to funds up to your credit limit and only pay interest on what you borrow.

But, largely, payday installment loans come with fixed terms — usually 3 to 6 months — and a set repayment schedule. You receive a lump sum upfront and repay it in regular installments that include both principal and interest. The account closes once you’ve paid off the loan.

Here’s a comparison of the three loan types mentioned above:

Knowing the difference between installment loans and revolving credit can help you make smarter borrowing decisions.

Installment credit has fixed payments, a clear end date, and predictable costs. You know exactly when you'll be debt-free and how much you'll pay in total. This structure promotes disciplined repayment and helps build a positive payment history. Common examples include auto loans, mortgages, and personal loans. 

Revolving credit, on the other hand, offers flexible borrowing up to a set limit, with ongoing interest on outstanding balances. You can borrow, repay, and borrow again as needed. However, minimum payments often barely cover interest, potentially leading to long-term debt. Credit cards and lines of credit fall into this category. 

When it comes to credit scoring, installment credit can help build credit history through consistent, on-time payments. But revolving credit affects your credit utilization ratio — the amount you owe compared to your credit limit. High utilization can hurt your credit score, while low utilization can help it.

It’s worth noting, however, that payday loans — regardless of structure — often don't report to credit bureaus unless you default. So they typically don't help you build credit.

Installment and revolving payday loan structures can be costly. Payday installment loans may feel easier to manage with smaller payments, but you could end up paying more interest overall. Revolving payday lines often lead to ongoing fees and slow progress toward paying off the balance.

If you must choose between the two, payday installment loans typically offer more predictable costs and a clear payoff timeline. However, both options should be a last resort.

Instead, build an emergency fund or explore other options, like fixed repayment schedules or debt-free tools that eliminate debt cycles.

Earned wage access (EWA) offers a fundamentally different approach. Instead of borrowing money you don't have, EWA lets you access wages you've already earned but haven't received yet. It's like getting paid early for work you've already completed.

Unlike payday loans, EWA typically involves a one-time fixed withdrawal with no compounding interest or mandatory fees, and no debt created as defined under traditional lending. You access your earned wages, and the amount is simply deducted from your next paycheck.

EarnIn's Cash Out¹ feature uses this approach by offering fixed repayments from your next paycheck with optional tipping² instead of mandatory interest. You can get up to $150 per day, with a max of $750 between paydays, with no credit checks or mandatory fees. Funds are typically in your account in one to three business days. Want your money even faster? There’s Lightning Speed³ for that. For a small fee (starting at $2.99–$5.99), you can transfer your earnings within minutes.

In a simple example, say Ana works four days and needs $50 for groceries before payday. With traditional payday loans, she might pay $57.50 ($50 plus a $7.50 fee). With EWA products, like EarnIn's Cash Out¹, she can access $50 of her earned wages and pay back exactly $50 from her next paycheck with no interest.

This structure helps mitigate the debt trap that makes payday loans problematic. You're not borrowing against future earnings but accessing money you've already earned.

Most payday loans are short-term, single-payment loans. They don't fit neatly into traditional borrowing categories, though newer products may be structured as installment or revolving credit.

Credit cards, home equity lines of credit (HELOCs), and some payday lines of credit are examples of revolving credit. These allow you to borrow, repay, and borrow again up to your credit limit.