Are Payday Loans Installment or Revolving Credit?

Did you know that more than half of all Americans live paycheck to paycheck? If you’re one of them, an unexpected expense can easily put your bank account in the red. That’s why a payday loan can be a good option when you’re in a bind and need a short-term money solution.

But what is a payday loan, exactly? Is it an installment loan? Revolving credit? Neither? We’ll break down the definitions to help you better understand payday loans and whether one might be the right option for your situation.

How payday loans work

A payday loan is a two- to four-week short-term, unsecured loan with minimal application requirements. Even if you have bad credit, many payday lenders will consider other factors in addition to your credit score, including your employment history and income.

Since payday loans don't require good credit or collateral – and are intended to be repaid with your next paycheck – you can expect to pay more in fees or interest than you might with other types of loans. Even so, a payday loan is one of the easiest loans to get, making it a popular option when you need an emergency loan.

What is an installment loan?

Installment loans are also considered short-term, unsecured loans, but they have longer repayment terms than payday loans. This allows you to repay the loan in smaller, multiple payments over time.

You’re probably already familiar with certain types of installment loans used to purchase big-ticket items. By definition, auto loans, mortgages, and student loans are all installment loans because you repay the amount borrowed in consistent monthly payments.

More commonly, however, the term “installment loan” refers to a personal loan.

What is revolving credit?

Revolving credit is perhaps the most flexible way to borrow money because you can draw on funds as needed and only pay interest on the amount borrowed. Credit cards are a form of revolving credit.

Another type of revolving credit is a line of credit, which lets you draw money from your available credit limit as needed. One of the great things about a personal line of credit is that you only pay interest on the amount borrowed. Your line of credit remains open even if you repay the balance, ensuring access to cash when needed.

Is a payday loan an installment loan or revolving credit?

So, is a payday loan an installment loan or revolving credit? It’s neither.

Payday loans, also known as cash advances, are low-limit loans meant to cover immediate cash needs. Unlike an installment loan, which lets you repay the loan in set monthly payments, a payday loan must be repaid in full on your next payday. This is why you only want to borrow an amount you can realistically repay the next time you get paid.

And since payday loans are a quick, one-time solution for accessing funds, they’re not a type of revolving credit either. Essentially, payday loans are in their own category.

How to get a payday loan

If a payday loan sounds like a good option for your immediate financial needs, here’s what you should do:

1. Choose a lender and loan option

Application requirements, interest rates, and loan fees vary by lender and are based on state regulations. By law, a lender must disclose the APR and finance charges so that you understand the cost of the loan before signing. These are factors you’ll want to consider when choosing a lender.

When you decide on a lender, you may want to explore other loans besides payday loans, such as installment loans or revolving credit. At Advance America, we can help you determine which loan options you qualify for so you can choose the one that best suits your situation.

2. Gather all necessary documents

While payday loans don’t require good credit, there are a few things you’ll need to apply. Most importantly, you need a source of income. The amount you can borrow depends on your income and how much you expect to get paid with your next paycheck.

You’ll also need a government-issued ID, a checking account, and – in some instances – a voided personal check and Social Security Number. Find your nearest Advance America center to see which documents are required in your state.

3. Fill out and submit an application

Once you have the necessary documents, fill out an application online or at the lender’s storefront. You can apply for an Advance America payday loan online 24/7 or during business hours at one of our many locations.

4. Wait for approval

Since payday loans are designed to access money for immediate needs, you don’t have to wait long for an approval decision. In fact, Advance America provides an approval decision within minutes of submitting your loan application.

5. Receive your funds

Depending on what time you apply for a payday loan, you could receive your money the same day. For example, if you’re approved at Advance America on a weekday before 10:30 a.m. (Eastern Time), you’ll typically receive funds in your bank account by 5:00 p.m.

Payday loans are generally funded no later than the next banking day. So, suppose you’re approved on a Friday afternoon. In that case, the money will most likely be deposited in your bank account on Monday morning (unless it’s a banking holiday).

Are payday loans right for me?

Payday loans are convenient, easy to get, and a great option when you need emergency cash. However, you should ask yourself some questions before taking out a payday loan.

For starters, how much money do you need? You may not be able to borrow the entire amount you want due to state laws regulating payday loan maximums. In fact, payday loans may not even be available in your state. In that case, you may have to consider payday loan alternatives.

Can you afford to repay the payday loan with the money from your next paycheck? Even if you live in a higher-limit state, you should never borrow more money than you can repay. Irresponsible borrowing can lead to a debt cycle commonly called a “payday loan trap,” which is difficult to escape.

And finally, do you have bad credit? If so, a payday loan may be one of the only loan options available.

Get a payday loan from Advance America

Whether you need a payday loan, installment loan, or revolving line of credit, Advance America can help. We’ve been a reputable payday lender for over 25 years, offering an easy application process, instant approval decisions, and same-day funding.

Apply now and get the cash advance you need – or come visit us in-store to learn more about our loan options!