A payday loan is a short-term installment loan, as it involves borrowing a fixed amount that must be repaid in full within a brief timeframe.
While most installment loans allow you to repay your loan in several fixed installments over several months (or even years), this isn't the case with payday loans.
With payday loans, you're expected to pay off the entire loan amount in 2-4 weeks — usually by the time you receive your next paycheck. So, instead of making several payments to gradually pay down your payday loan, you pay off the whole thing at once.[1]
Learn: Is a payday loan variable or fixed rate?
Revolving loans, on the other hand, are set up so you can borrow and repay money on the same account, multiple times, up to a set limit. You have ongoing access to a set credit amount for your account, even as you repay or add to your balance.
As you repay your balance, you gain access to more credit. This is how credit cards and lines of credit work. There is no "end" to your loan, as long as you meet minimum payment requirements and keep your balance below the credit limit.[2]
On the other hand, bad credit payday loans are designed to be a one-time borrowing arrangement, similar to installment loans like an auto loan or a mortgage. Once you have paid the balance in full, the loan is closed (though you can always take out another loan in the future).
Learn: Can you have two payday loans at once?
Despite this, many people end up stuck with payday loans for much longer than expected because their high interest can make them hard to pay off. This often causes people to have to renew or extend their loan, or take out a new loan to pay for the old one.
So, if you're not careful, this "one-time" borrowing arrangement can become a long-term burden on your finances.
To avoid this, make sure you have a thorough understanding of your finances and what you can afford to repay before you borrow and, most importantly, follow your repayment schedule. 📅👌
