The different types of personal, short term loans can be hard to navigate. When you’re looking for a quick loan, there are two main varieties to choose between: payday loans or instalment loans (which you might see spelled as ‘installment loans’). cashasap.co.uk is an expert in both and have put together this guide to help you understand the difference between payday and instalment loans and to know which is better for you.

Instalment vs payday loans

While instalment and payday loans have a lot of similarities, they are different types of short term loans that work for different people, depending on your circumstances.

The similarities

Payday and instalment loans are both short term loans that allow you to borrow a small amount of money over a short period. It depends on your lender as to how much each allows you to borrow, but it can range anywhere from £50-£1000 with the limit often being lower for first time customers.

Both loans are intended to provide emergency money when you’re caught short and it’s vital that whichever you choose, you can afford to pay it back in the time frame agreed upon by you and your lender.

The difference

There are a few differences between payday and instalment loans. However, the primary difference is in the way that they are paid back. Payday loans are short term loans that are paid back in one amount after 1-35 days (depending on the lender). Instalment loans, on the other hand, are paid back over the course of multiple months.

Instalment loans vary considerably but the overall loan is paid back in multiple instalments over a longer period of time compared to payday loans. Most small instalment loans are paid back between 1-6 months (depending on the lender), with 3 month instalments being the most common. This can make it easier to afford the repayments because you pay back smaller amounts each month rather than a larger single repayment.

There are varieties of larger loans that can be classed as instalment loans because they’re paid back in monthly instalments until the overall loan has been repaid.

Payday or Instalment: Quick Comparison

This quick comparison list should give you a quick overview of the difference between payday and instalment loans and which might work better for you.

The Borrower

While everyone will borrow money for different reasons and with a different set of circumstances, each loan lends itself well to different typical borrowers:

Payday Loans are suitable for:

  • Bad credit scores or thin credit history.

  • Those looking for smaller loans.

  • Low income borrowers.

Instalment Loans are suitable for:

  • Bad or good credit scores, depending on the lender.

  • Those looking for small to medium sized loans.

  • Those who can afford to payback smaller amounts over a longer period.

Cost of Loan

When taking out a loan, you will need to pay back the amount borrowed with additional interest, which will vary according to the lender. This is how the lenders make money from loans. The different types of loans have different costs.

Payday Loan Costs:

  • Known for having very high APR/interest rates.

  • Often balanced by the fact the loan is paid back over a short period.

Instalment Loan Costs:

  • APR and interest vary greatly between lenders.

  • Paying over multiple months helps to spread the cost.

Loan Terms

The terms of each loan will vary a lot between different lenders, so it’s vital that you thoroughly read all the information that a lender provides. However, there are some patterns in terms when it comes to instalment vs payday loans.

Payday loans:

  • Paid back in one instalment

  • Usually between 1-35 days (depending on lender)

  • Loans can be borrowed to the exact £ you need

Instalment loans:

  • Paid back in multiple instalments

  • Usually over 1-6 months (depending on lender)

  • Loans can be borrowed to the exact £ you need

Which is better, payday or instalment?

When asking whether a payday or instalment loan is better, you have to consider your own personal circumstances, requirements from a loan and your financial situation for repayment. It will depend on these which type of loan would be better for you.

If you need a smaller amount of cash for a short time to cover an emergency payment before you’re next paid, then a payday loan might be the better choice. If you need to borrow a slightly larger amount then an instalment loan might be best for you; the method of repayment makes borrowing larger amounts more affordable. For example, cashasap.co.uk offer payday loans up to £400 and instalment loans up to £750.

If you have a bad credit score, you might find it easier to get a payday loan -- although this isn’t always the case as many instalment loan lenders cater for borrowers with bad credit.

You should also consider how you can afford to repay the loan. If you know that you can cover it completely in your next payday -- while still affording your normal costs such as rent, bills and food -- then a payday loan could be a great option. Alternatively, if paying the money back in smaller installments over a few months helps to ensure that you can afford repayment, then an instalment loan could be the better choice for you.

Common Payday vs Instalment Loan Questions

Are payday loans and installment loans the same?

Payday and instalment loans both allow you to borrow money over short periods, but payday loans are repaid in one sum between 1-35 days (depending on the lender) while instalment loans are paid back in multiple instalments over a few months.

Can you have an instalment loan and payday loan at the same time?

Generally speaking, payday lenders shouldn’t provide more than one loan at a time. This helps to ensure you can afford to pay back the money you have borrowed. If you need to borrow a higher amount, you should consider another type of loan or talk to a money advice service.

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

An installment loan is a type of personal loan. Personal loans are loans which help an individual cover costs and they aren’t secured against your home or another asset, like your car.

Instalment Loan vs Payday Loan

We hope that our guide to payday and instalment loans has helped you to understand the differences between each loan, the advantages and which might be better for you.

If you still have questions about instalment vs payday loans, then you can get in touch with cashasap.co.uk. We offer both payday and instalment loans from £100 to £750.