- A $500 installment loan at 35.99% APR over 6 months costs about $53.78; the same $500 payday loan costs $75 every two weeks.
- Payday loans are built to be renewed: most are rolled over at least once.
- Installment loans report on-time payments; payday loans usually do not.
- If you have a payday loan now, refinancing it into an installment loan stops the fee cycle.
Two loans, two structures
An installment loan pays out once and is repaid in equal monthly payments over a set term. Each payment reduces the balance until it reaches zero. A payday loan pays out once and is due in full, plus a fee, on your next payday, typically in two weeks. If you cannot repay, you pay the fee again to extend it, and the balance does not move.
That structural difference, not the headline fee, is what makes payday loans expensive.
The $500 comparison
| Installment loan | Payday loan | |
|---|---|---|
| Amount | $500 | $500 |
| Cost stated | 35.99% APR | $15 per $100 (≈391% APR) |
| Repayment | $92.30 × 6 months | $575 in 14 days |
| If rolled over 6 times | n/a — cannot roll over | $450 in fees, $500 still owed |
| Total cost | $53.78 | $450+ |
| Reported to bureaus | Usually yes | Rarely |
Even at the worst installment APR in our network, the six-month loan costs about one-eighth of a payday loan that gets renewed through the same period.
Why four in five payday loans get rolled over
The CFPB found that most payday borrowers cannot repay the full balance from one paycheck without borrowing again, so the loan is renewed or re-borrowed. Fees compound while the principal stays put. Lenders describe the product as a two-week bridge; the data show a months-long cycle.
When a payday loan is the only option
Rarely. Installment loans through True Finance approve the same income-based profiles payday lenders serve, including scores under 580, and fund the next business day. If you truly need cash within the hour, a cash advance app is cheaper than payday. If you are already in a payday loan, refinance it into an installment loan and pay the payday lender off the day funds land. See payday loan alternatives.
How to tell them apart on a website
- Look for "due on your next payday" or "single payment": payday.
- An APR above 100%: payday, even if it has several payments.
- A term of months with equal payments and an APR under 36%: installment.
- No APR shown at all: walk away.
- CFPB, "Payday loans and deposit advance products" data point (2014) and 2017 payday rule findings
- CFPB, "What is the difference between a payday loan and an installment loan?"
- State usury and small-loan statutes vary; see our loans-by-state page
