Installment Loans vs. Payday Loans: What’s the Difference?

Ever needed cash fast and found yourself choosing between a payday loan or a personal installment loan — but the best path doesn’t seem clear? This information can help you cut through the noise: Payday loans can offer some relief but often come with sky-high costs. Installment loans can give you more time to repay — but you may not receive the cash as fast, and they still can involve interest and fees.

Here’s some good news: Borrowing isn’t your only option. Tools like EarnIn's Cash Out¹ gives you access to your earned wages. Get up to $150 per day, with a max of $750 between paydays¹— no interest, no mandatory fees.

In this guide, you’ll learn all about installment loans and payday loans; see side-by-side comparisons of cost, repayment, and credit impact; and understand when EWA might be a better choice for borrowing. Let’s dive in.

What is an installment loan?

An installment loan gives you a fixed amount of money up front, which you repay over time in equal, scheduled payments — usually monthly. An installment loan's annual percentage rate typically ranges from 6% to 36% APR, based on your credit profile and the lender.

Common sources of installment loans include banks, credit unions, and online lenders. They're often used for planned expenses like car repairs, medical bills, or consolidating higher-interest debt.

But while the fixed schedule can help with budgeting, don’t forget to check the fine print. Some lenders charge origination fees — a one-time fee taken from your loan amount—and may penalize you for paying off the loan early (a prepayment penalty). So while installment loans may be more affordable than payday loans, there are still other factors to consider.

Possible benefits of installment loans

Installment loans can be easier to manage when you’re borrowing with a clear plan and a stable repayment strategy. There can be some advantages of getting an installment loan:

Predictable repayment schedule. One of the key installment loan benefits is a predictable repayment schedule — you’ll know how much is due each month.
Lower cost-per-dollar borrowed. Interest for installment loans is usually lower than payday loans — especially for good-credit borrowers — but lender qualifications and underwriting processes can vary.
Can help build credit. If your lender reports to credit bureaus, consistent, on-time payments may impact your credit score.
Structured payoff. Unlike open-ended credit, a structured payoff plan is systematic and organized, with predefined payments until the debt is paid off.

What is a payday loan?

A payday loan is a short-term cash advance — usually $500 or less — designed to carry you through to your next paycheck. These loans typically come with a flat fee per $100 borrowed, often ranging from $15–$30, which can translate into an APR of almost 400%.

To get a payday loan, you usually provide a postdated check or authorize an automatic bank withdrawal. The lender then often requests full repayment — loan and fees — on your next payday (though loan processes may vary). If you can’t cover the loan, it’s typically “rolled over” into a new loan with another fee, possibly pushing you into a cycle of debt.

It can be easy to underestimate the cost because using APR to evaluate a two-week loan can be difficult. But even one rollover could substantially increase your costs.

Possible benefits of payday loans

Payday loans can be high-risk, high-cost tools. They can offer quick help, but the risks grow fast if you can’t repay the loan in full and on time. But there can be some advantages:

Fast and simple process. Application takes minutes. Funds are often deposited the same day.
Minimal requirements. You typically just need proof of income, a valid ID, and a bank account — usually no traditional credit check required.
Useful in emergencies. Payday loans can help when you truly have no other option — but only for short-term needs.

Installment loans vs. payday loans: The differences

Here’s a side-by-side payday vs. installment loan comparison to help you see how these two options stack up:

Feature	Installment loan	Payday loan
Loan amount	$500 – $10,000+	Usually $500 or less
Repayment term	6 months to several years	Usually 2–4 weeks
Interest/fees	6–36% APR and possible fees	Flat fee ($15–$20 per $100) and 300%⁺ APR
Repayment method	Monthly payments	Lump sum on payday
Credit requirements	Credit/income checks may be required	Based on income only
Credit impact	May build credit if reported	Rarely reported to credit bureaus

As of September 11, 2025

The $500 reality check: Payday vs. installment

It’s clear how fast the payday option may become more expensive:

Installment loan: $500 over 12 months at 25% APR = $55 total interest
Payday loan: $500 due in 14 days with $75 fee = $575 total; roll it over once, and you owe $650⁺

Needs that installment loans might be good for

Consider an installment loan if you:

Need to borrow a larger amount
Want predictable monthly payments
Are looking to rebuild or establish credit
Can qualify based on credit or income

Installment loans may be a better fit for long-term needs, depending on your situation. Make sure to review the fees and terms carefully to ensure they align with your budget.

Needs that payday loans might be good for

A payday loan may be an option if:

You have a very short-term need
You’re confident you can repay in full within days
You’ve explored all other options

Remember to use caution: Ongoing reliance or rollovers could trap you in a debt cycle. Payday loans should be used for a short-term financial emergency you can pay back with your next paycheck; not a regular solution.

Try earned wage access (EWA) for a better option

There can be a better way to cover short-term needs — without borrowing at all.

Earned wage access lets you get wages you’ve already earned but haven’t yet been paid. It’s not a loan. There’s no interest, no late fees, and no credit impact.

EarnIn’s Cash Out¹ lets you get up to $150/day, with a max of $750 between paydays. There’s no mandatory fees or interest, and you can leave an optional tip² — only if you choose.

You’re not borrowing from a lender — you’re accessing money you’ve already earned. It’s one way to help manage expenses between paychecks.

EWA vs. loans: Make the right move for your wallet

Use this quick key for evaluating your needs:

Installment loan = Structured payback over time
Payday loan = Fast cash at a high cost
Earned wage access (EWA) = Access to your pay the same day you work,³ starting at $2.99 per transfer to your bank account. Get up to $150 per day, with a max of $750 between paydays.

When money’s tight, think before you borrow. Tap into your earned wages with EarnIn first, and then explore loans if needed.

FAQs

What is the difference between an installment loan and a payday loan?

Installment loans are repaid over time with fixed monthly payments. Payday loans are short-term advances repaid all at once — and usually come with high fees.

What are the pros and cons of installment loans?

Pros: Lower cost per dollar, predictable payments, credit-building potential.
Cons: Interest charges, fees, and eligibility requirements.

Are installment loans bad for credit?

No. In fact, when paid on time and reported to credit bureaus, installment loans can improve your credit score.

Is it better to pay cash or installment?

If you have the cash, great! But if spreading out payments helps you manage a large or urgent expense, a well-structured installment loan can make sense — as long as you understand the terms.

Ready to ditch the debt cycle?

Download EarnIn today and get access to your hard-earned money — on your terms.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.

EarnIn is a financial technology company, not a bank. Banking services are provided by our bank partners on certain products other than Cash Out.

¹
A pay period is the time between your paychecks, such as weekly, biweekly, or monthly. EarnIn determines your daily and pay period limits (“Daily Max” and “Pay Period Max”) based on your income and financial risk factors as outlined in the Cash Out Maxes section of our Cash Out User Agreement. EarnIn reserves the right to adjust the Daily Max and Pay Period Max at its discretion. Your actual Daily Max will be displayed in your EarnIn account before each Cash Out.

EarnIn does not charge interest on Cash Outs or mandatory fees for standard transfers, which usually take 1–2 business days. For faster transfers, you can choose the Lightning Speed option and pay a fee to receive funds within 30 minutes. Lightning Speed may not be available at all times and/or to all customers. Restrictions and terms apply; see the Lightning Speed Fee Table and Cash Out User Agreement for details and eligibility requirements. Tips are optional and do not affect the quality or availability of services.

²
Tips go to EarnIn and help us provide tools such as Credit Monitoring for free and keep Lightning Speed fees low. Your service quality and availability aren’t affected by whether you tip or not.

³
Lightning Speed is an optional service that allows you to expedite the transfer of funds for a fee. Depending on the product, the fee may be charged by EarnIn or its banking partner. Lightning Speed may not be available in all states and/or to all customers. Restrictions and terms apply. See the Lightning Speed Fee Table for details.