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Payday loan vs installment loan

Which loan should you get if you have bad credit?

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By

Leanne Escobal

&

Emma Balmforth

Updated

Fact checked

There are key differences between payday loans and installment loans, especially when it comes to annual percentage rates (APRs), loan terms and loan amounts. Overall, an installment loan has lower APRs, longer loan terms and larger loan amounts than a payday loan.

Understanding installment loans

An installment loan is a specific amount of money you borrow and pay back in installments with interest over a period of time. Technically, loans such as mortgages and car loans are installment loans, but in the comparison below, the “installment loan” we are referring to is a personal loan offered by alternative lenders to borrowers with bad credit.

Traditional lenders like banks and credit unions also offer installment loans, but since their loans are for borrowers with good credit, we will not compare them with payday loans here.

Payday loan vs installment loan features

FeaturePayday loanInstallment loan
 

Loan amount

$100 to $1,500$500 to $15,000
Loan termBy your next payday, up to 62 days6 months to 5 years
Annual percentage rate Over 300% (borrowing fee is $15 to $25 for every $100 borrowed)18% to 47%
Turnaround timeWithin a few hoursWithin 24 to 48 hours
Eligibility requirementsFlexible – accepts bad credit and non-employment incomeLess flexible – has credit score and income requirements

Payday loan vs installment loan: $700 example

Let’s say a borrower in Ontario is debating between a $700 payday loan and $700 installment loan. Here’s how the cost can break down.

FeaturePayday loanInstallment loan
 

Loan amount

$700$700
Borrowing cost$15 per $100 borrowed = $105 (497.73% APR)46.93% APR
Loan term11 days6 months
Payment amountOne full payment of $805$133.15 monthly for 6 months (98.88 in total interest)
Total loan cost$805$798.88

If you’re looking at the dollar amounts, the installment loan is nearly as expensive as the payday loan. The key difference here is the loan term. An installment loan allows you to spread out your payments over several months. But watch out for longer loan terms, because if the loan term becomes too long, you may end up paying more in interest than a payday loan.

⚠️ Warning: Be cautious with payday loans
High-cost payday loans are unsustainable for borrowing over a continued period of time and are expensive as a means of longer-term borrowing. If you're experiencing financial hardship call Credit Counselling Canada for free financial counselling (Monday-Friday 8:00am-5:00pm at +1 866-398-5999). You may also want to consider payday loan alternatives.

Compare payday loans

1 - 2 of 2
Name Product Loan Amount Loan Term Interest Rate Turnaround Time Serviced Provinces Offer Table description
GoDay Payday Loan
GoDay Payday Loan
$100 - $1,500
Up to 62 days
Varies by province
As little as 2 minutes with INTERAC e-Transfer®
AB, BC, MB, NB, NS, ON, PEI, SK
To apply, you'll need to be a Canadian resident over the age of 18 with a valid email address, phone number and an open bank account with a Canadian bank or credit union.
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View details
iCASH Payday Loan
iCASH Payday Loan
$100 - $1,500
7 - 62 days
Varies by province
As little as 2 minutes with INTERAC e-Transfer®
AB, BC, MB, NB, NS, ON, PEI
Get up to 20% in cash back once your payday loan is fully repaid. Conditions apply.
Same day cash up to $1,500 for car payments, rent, mortgage, home & appliance repair, and more. 24/7 instant approval and e-Transfer funding. Income of at least $800/month required.
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View details
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Maximum borrowing costs of payday loans per province
Always refer to your contract for exact repayment amounts and costs as they may vary from our results.
Province Maximum allowable cost of borrowing
Alberta, British Columbia, New Brunswick, Ontario & Prince Edward Island $15 per $100 borrowed
Manitoba, Saskatchewan & Nova Scotia $17 per $100 borrowed
Newfoundland and Labrador $14 per $100 borrowed
Quebec Limit of 35% annual interest rate (AIR)

Compare installment loans

1 - 6 of 6
Name Product Interest Rate Loan Amount Loan Term Requirements
LoansLoans.ca Installment Loan
LoansLoans.ca Installment Loan
28.00% - 32.00% + broker fee
$300 - $1,000
3 - 12 months
Requirements: min. income $1,200/month, 2+ months employed. No credit check required.

Note: You may be charged a broker fee up to $300.
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View details
Spring Financial Installment Loan
Spring Financial Installment Loan
9.99% - 46.96%
$500 - $35,000
6 - 60 months
Requirements: min. income $1,800/month, 3+ months employed, min. credit score 500
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View details
Loans Canada Installment Loan
Loans Canada Installment Loan
8.00% - 46.96%
$500 - $50,000
4 - 60 months
Requirements: min. credit score 300
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View details
SkyCap Installment Loan
SkyCap Installment Loan
19.99% - 39.99%
$500 - $15,000
9 - 60 months
Requirements: min. income $3,333/month, full time employment/pension, min. credit score 600, no bankruptcy
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View details
LoanConnect Installment Loan
LoanConnect Installment Loan
32.00%
$500 - $2,500
3 - 6 months
Requirements: min. credit score 300
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View details
Mogo Installment Loan
Mogo Installment Loan
9.90% - 46.96%
$200 - $35,000
6 - 60 months
Requirements: min. income $13,000/year, min. credit score 500
100-day money-back guarantee. If you're not happy with your loan, pay back the principal and get your 100 days of paid interest and fees back.
Go to site
View details
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How to choose between a payday loan and installment loan

Both are high-interest loans. Generally, a payday loan should only be a last resort because of its extremely high interest rates and short repayment terms. When making a decision, ask yourself the following questions:

  • Can I afford to repay the loan within the loan term? Payments for both payday loans and installment loans will be automatically deducted from your bank account. If you don’t have enough money in it on the due date, you will be charged fees. Make sure you have an exit strategy before taking out a payday loan or installment loan.
  • How much do I need? Payday loans max out at $1,500 (or less depending on your net income).
  • Do you want to pay off the loan in 1 lump sum? Some people prefer to pay off the loan in 1 lump sum rather than stretching it out over months. Payday loans offer that option.
  • How fast do you need the funds? It’s possible to get a payday loan within a few hours. Installment loans take around 1 to 2 business days.

    What do I need to apply for a payday loan vs installment loan?

    Payday loans

    • Be the age of majority. You need to be at least 18 years old (19 in some provinces and territories).
    • Steady source of income. Many payday lenders can accept non-employment income such as Canada child benefit, employment insurance, disability and social assistance. Learn more about payday loans for government benefits.
    • Valid bank account. You’ll need to provide a voided cheque or fill out a pre-authorized debit form.

    Before taking out a payday loan, become familiar with the payday loan regulations of your province.

    Installment loans

    • Be the age of majority. You need to be at least 18 years old (19 in some provinces and territories).
    • Steady source of employment income. Although there are some lenders that accept non-employment income, many require employment income.
    • Meet the minimum credit score. This varies widely among lenders. Some lenders accept a credit score in the 300s or 400s, while others start in the 500s.
    • Valid bank account. You’ll need to provide a voided cheque or fill out a pre-authorized debit form.

    Bottom line

    Payday loans and installment loans from alternative lenders are both high-cost loans that are accessible to borrowers who don’t qualify for traditional loans from banks and credit unions. Before taking out a payday loan or installment loan, compare your options, understand the true cost of the loan and have a concrete plan to repay it.

    Frequently asked questions

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