Is a Payday Loan Installment or Revolving?

Suddenly laid off, hit with a significant household expense, short on rent, or saddled with a medical emergency, and don’t have enough cash to cover the costs? We’ve all felt that panic and desperation.

Some people are lucky to have access to many different loan options to bridge this gap; others don’t have to turn to payday loans. Before taking out a payday loan, learn more about what it is, what you are getting yourself into, and whether it is a revolving loan or an installment loan.

Is a Payday Loan Revolving or Installment?

Payday loans are neither installment loans nor revolving lines of credit. These are short-term cash loans. They have extremely high interest rates. Payday lenders usually target borrowers with bad credit. They usually require payment authorization from a checking account and are expected to be repaid in full from the borrower’s next paycheck usually within two weeks. 

What is an Installment Loan?

An installment loan is when you borrow a set amount of money at one time and make repayments over a set period of time, usually months or years. You will receive this loan in one lump sum. It will be repaid in monthly installments.

These types of loans have the advantage of lower interest rates and the flexibility to choose the life of the loan to fit your budget. They will sometimes be secured loans requiring collateral like a car but can also be unsecured personal loans.

Borrowers will pay an origination fee, and there will be a credit check with one of the major credit bureaus to qualify for this type of loan. Your creditworthiness and payment history will determine your rate and terms. This account closes once the loan’s principal is paid in full. There are no prepayment penalties.

Installment loan examples: There are several types of installment loans: Mortgages, auto loans, student loans and personal loans are some examples.

What is a Revolving Loan?

A revolving loan allows the account holder to repeatedly borrow money up to a specific set limit while making monthly payments in installments without applying for a new loan. You can access these funds up to the maximum amount known as your credit limit. A financial institution typically issues it. It is a standard flexible finance tool due to your ability to repay and re-borrow.

Revolving loan examples: Some examples of revolving loans are credit cards, personal lines of credit, or a home equity line of credit (HELOC).

READ MORE: Need to consolidate payday loan debt? Here’s a step-by-step guide

What is a Payday Loan?

Payday loans are short-term, high interest, low limit loan amounts that help cover immediate cash needs until your next paycheck. They’re unsecured loans, meaning no collateral is needed. The annual percentage rate on these loans is very high: The average is 391% for a 14-day loan. The lender doesn’t often check your credit report but does verify your income and banking information. They need to be repaid on your next payday.

What Happens if I Can’t Repay a Payday Loan?

A payday loan default can lead to expensive compounding overdraft fees, aggressive collection calls, credit score damage, a possible court summons, and even wage garnishment

Don’t think this can’t happen to you just because you only borrowed $300. There are some horror stories of people even losing possession of their cars because of a payday loan.

If you are in a state where you are legally obligated to pay back this loan, they can sue you and garnish your wages–and you will lose. Before this happens, you may want to explore alternatives to remedy the situation or speak to the lender about negotiating options to settle your debt. 

You can mention filing for bankruptcy and use this as leverage for negotiating with the lender. The word “bankruptcy” will make them take you seriously because they know if you declare bankruptcy, they will get nothing.

Know your rights as a consumer if you default on your payday loan. Check out the Federal Trade Commission’s Fair Debt Collection Practices Act and look up your state laws to explain your rights as a borrower. In some states, you can be exposed to bank levies, and property lies aside from wage garnishment.

When it comes to collecting from you, these guys don’t waste time. Remember you gave them access to your bank account and for each insufficient fund’s transaction, your bank will be drained quickly, compounded with other fees.

You and your references that you used to take out the loan will be getting harassing calls, attorney letters and will try to hunt you down. But keep in mind, that it is illegal for them to threaten you with the prospect of jail time. You could contact your state attorney general’s office if they threatened you with arrest.

If you receive a summons, do not ignore it. Show up and ask the lender for proof of monies owed. Most of the time, they don’t show up with any evidence.

READ MORE: Best payday loan consolidation and debt relief companies

10 Better Alternatives to Payday Loans

Payday loans are problematic at best and often leave borrowers in a worse position than when they took out the loan in the first place. Here are a few better options:

1. Peer-to-Peer Lending Sites

These sites connect borrowers directly to lenders who lend to qualified applicants. These lenders are known as investors. Each site lists rates, terms, varying minimum and maximum amounts, listed borrower qualifications, fixed interest rates and a streamlined application process. Borrowers will have a fixed payment. Remember that you’ll pay higher interest rates if your credit score is lower. Here are some of the top options:


Peerform is a peer-to-peer lending platform that matches borrowers with investors. Peerform offers unsecured loans with fixed APRs ranging from 5.99% to 29.99%. There is no application fee, and loans range from $4,000 up to $25,000.


Upstart is another peer-to-peer platform that’s best for borrowers with limited credit history. Upstart offers personal loans ranging from $1,000 to $50,000 over three- and five-year terms. Annual percentage rates range from 5.55% to 35.99%.


Prosper is best for borrowers with established credit history. They offer fixed-rate loans ranging from $2,000 to $40,000, repayable over three or five years. Annual percentage rates range from 7.95% to 35.99%, depending on the borrower’s credit history. Borrowers may be charged an origination fee ranging from 2.41% to 5.99%. 

Want to know more about peer-to-peer lending? Here’s an explanation of how it works:

2. Get a Cash Advance from a Secured Credit Card

A secured credit card loan is a short-term loan offered by your credit card company. You are borrowing money against your card’s line of credit and can be as simple as heading to the ATM.

3. Explore Payday Alternative Loans from a Credit Union

Credit unions offer these loans that cost considerably less than a payday loan. It allows one to 12 months to repay, and loans can be up to $2000; you have to be a member of the credit union for at least one month, maximum APRs of 28%, and an application fee of no more than $20. You can receive a maximum of 3 loans within six months. Most don’t require good credit but just the borrower’s income and ability to repay the loan.

4. Download a Cash Advance App

Cash advance apps, also sometimes called paycheck advance apps, allow you to borrow against your paycheck if you have direct deposit. They don’t charge any fees or interest payments. Instead, the lenders rely on “tips” and sometimes a small monthly fee. You can withdraw some of the wages you have already clocked but haven’t gotten paid for. Dave and Earnin are some good choices, or you can read about our recommendations here.

5. Borrow Money From Friends or Family

Friends and family can be tricky to navigate, but it allows you to circumvent payday loan predatory interest rates. You need to be comfortable with being indebted to this person and risk the relationship going sour if you don’t uphold your end of the bargain. 

6. Visit a Pawn Shop

There is no credit check, and the item you pawned is used for collateral against the loan. Depending on the state, they have interest rates from 12% to 240%, but if you don’t want to repurchase it or can’t, you can walk away with no fees or dings to your credit.

7. Get Help from a Local Community Organization

Local community action agencies provide funds to low-income families and struggling households. They can offer interest-free loans or 0% interest loans to pay bills, home repairs, emergency financial aid, housing, car payments, and more.

8. Get a Side Hustle

Driving for Uber or Lyft, delivering for Instacart, Amazon Flex delivery, doing freelance work like copywriting, graphic or web design, dog sitting, you name it. The gig economy is vast.

9. Sell Unwanted Items Online

Selling things online is not only an excellent way to clear the clutter from your life but earn some extra cash. Some options include Mercari, eBay, Craigslist and Facebook Marketplace.

10. Apply for a Home Equity Line of Credit (HELOC)

This loan uses a percentage of equity in your home to get cash and is a revolving credit line that’s secured by your home. You get money in as little as 30-45 days, which is much more streamlined than the process you went through to buy your home. They usually have a variable interest rate, and repayment terms are more flexible. Alternatively, if you’ve built up a significant amount of equity in your home and interest rates are lower, it might be a good time to consider a mortgage refinance. 

READ MORE: If you need money now, here’s how to get help

The Bottom Line

Payday loans are fast, convenient, and easy to obtain, but the price is hefty. 

Payday loans as an option should be your very last resort after exhausting the alternatives we have presented to you. The last thing you want is a loan that rescued you from an initial panicked, desperate situation to leave you in a worse state than when you got in it.


Will a Payday Loan Affect My Credit Score?

These types of loans are generally not reported to the three major credit reporting companies and are unlikely to impact your credit score if you repay the loan. And if you take out a payday loan, they will not check your credit scores but verify your income and banking information. Although, if you choose to default on the loan and are taken to court and lose, it could impact your credit rating for seven years, and the type of credit score you have will affect your ability to qualify for other types of loans in the future.

Is a Payday Loan a Revolving Line of Credit?

No, it is not a revolving line of credit. It is a very short-term, high-interest, low-dollar loan that covers a shortfall until you receive your next paycheck. 

What Happens If You Never Pay Back a Payday Loan?

The creditor may pursue a debt collection service that will be much more aggressive and unpleasant in collecting from you. 
They can also file a lawsuit and garnish your wages but cannot go to jail. If the lender wins the case, a judgment will be filed that can go on your credit report.
In most states, the debt itself doesn’t expire or disappear until you pay it, unlike if you declare bankruptcy and in seven years, this is expunged from your credit report.
Go to the Federal Trade Commission’s Fair Debt Collection Practices Act website and check your state laws to explain your rights as a borrower.

Where Can I Get a Payday Loan if I Already Have One?

Some lenders won’t allow you to take out a second loan, though it’s technically legal to have more than one. You’ll probably have to go to another lender if you need another loan. This is not recommended. Remember that the more loans you take out, the worse your interest rate will be, and the more difficult it will be to escape the payday loan trap. Instead, try a cash advance app or look for a small personal loan.

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