Get A Small Installment Loan Instead Of A Payday Loan

Get A Small Installment Loan Instead Of A Payday Loan

Written by Bryan Daly
Fact-checked by Caitlin Wood
Last Updated November 28, 2022

If you’re struggling to keep up with your bills and have no emergency savings to fall back on, you may be considering taking out a loan. A loan can help cover your bills and spread out the payments so they’re more affordable.  If you have poor credit or a low income, you may be considering a payday loan, however, a small installment loan is the better way of covering your financial debt. 

Why Should You Get A Small Installment Loan Over A Payday Loan?

An installment loan can do everything a payday loan can do but better. It is not only cheaper, but it can also provide a longer repayment period making payments more affordable. Installment loans are also much larger which means you can cover a bigger expense. For example, an installment loan can help you: 

  • consolidate your debts
  • cover the cost of a large unexpected expense
  • cover home or car repairs
  • pay for medical expenses 

The Differences Between A Payday Loan And An Installment Loan

It’s important to understand that there is a difference between a payday loan and an installment loan. Do not get the two confused. Yes, they both are loans and must be paid back. However, there are key differences in interest, repayment term and loan amount. 

Repayment Term 

  • Payday loans are intended to be a short-term loan and generally should be paid back in full within 30 days. This includes the interest and any other fees
  • An installment loan allows borrowers to qualify for a larger loan amount and is intended to be paid back over a longer period of time, generally up to a year but often longer than that.

Loan Amount

  • A payday loan is intended to be a quick way to access a small amount of cash, usually between $50 – $1,500. 
  • An installment loan is a short-term loan that provides small loan amounts of $100 to $35,000. These numbers can easily be higher or lower depending on the lender you choose.

Interest

  • Paydays loans are the most expensive loan on the market. The APR falls well into the hundreds. On average a payday loan will have an APR of 400%. 
  • Installment loans are much cheaper in comparison with the APR ranging from 5% to 30%. 

Pros And Cons Of An Installment Loan Vs. A Payday Loan

When trying to decide between a payday loan and an installment loan there are multiple benefits and drawbacks to consider.

Installment Loan Pros

  • Flexible Repayment Options – An installment loan allows you to choose a repayment period and even repayment frequency (monthly, weekly, bi-weekly) that suits your financial situation. 
  • Low Interest Rates – You can save a lot of money in interest with an installment loan. Rates vary between 3% to 46%. 
  • Accepts Bad Credit – Many alternative lenders that provide installment loans accept a wide variety of borrowers. As such, even those with bad credit are eligible. 

Installment Loan Cons

  • Fees – Similar to a payday loan, some installment loans charge origination fees and additional fees.
  • Higher Payments – You can often get approved for larger amounts with an installment loan. Though that can be a positive factor, it also means you will be adding a larger amount of debt you must repay. 

Payday Loan Pros

  • No Credit Check Required – Payday lenders generally don’t require credit checks, making it easy to get approved even if you have bad credit. 
  • Accepts Alternative Sources Of Income – If you’re unemployed, on maternity or live off of disability benefits, you can still get a payday loan. Many payday lenders accept alternative sources of income including employment insurance, CCB, disability assistance and other government benefits. 

Payday Loan Cons

  • Small Loan Amounts –  If you need to cover rent, utilities, and extra gas money, you may find yourself taking multiple payday loans to cover the expenses.
  • High interest – As mentioned above, payday loans have APR that range in the hundreds. Moreover, payday loans are known to trap borrowers in endless cycles of debt
  • Short Repayment Period – Payday loans are generally repaid on your next payday, which is usually between 14 to 30 days. So if you borrow $800, you’ll be expected to pay that entire amount plus interest and fees.  

Cost Of A Payday Loan Vs. An Installment Loan

There are a number of factors that can affect the cost of a payday loan and installment loan. This may include the interest rate, term length, loan amount and associated fees.

The interest rates for installment loans are based mainly on your finances and lender’s policies. However, every province has a specific maximum rate that payday lenders can charge.

For example, here’s how much you could pay for these loans:

Payday LoanInstallment Loan 
Loan Amount$1,500 $1,500
Interest Rate$19 per $100* ($285 or 495.3 % APR)29.99% APR  
Loan Term14 days 3 months
Payment AmountSingle payment of $1,785 ($1,500 + $285) 3 x payments of $525
Total Cost$1,785$1,576
* the interest rate will vary by province

What Do You Need To Get An Installment Loan?

Installment loan requirements vary from lender to lender. Banks often have tougher standards, while some alternative lenders are more lenient, in exchange for charging higher rates. That said, most lenders will require these documents when you apply:

  • Proof of Age/Identity – To get any loan, you must be at least the age of majority in your province or territory (18 or 19+). So, lenders will typically request a piece of photo government identification, such as your passport or driver’s license. 
  • Proof of Residency/Citizenship – You may also need to be a Canadian citizen or permanent resident to qualify for an installment loan. Your lender could ask for a document containing your home address, like a rental agreement or utility bill.     
  • Proof of Income – Next, lenders will ask for a document that shows your annual income, like a recent pay stub or tax slip. If you’re self-employed or earning other forms of income (government benefits, etc.) you must provide proof of that too.  
  • Proof of Bank Account – Most lenders also request your bank account details, using a recent bank statement or VOID cheque. This is so they can deposit your installment loan, collect payments and have another way to verify your income. 

How To Apply For An Installment Loan? 

Applying for an installment loan is easy most of the time. Simply follow these steps:

  • Compare Options – Before applying for a loan, be sure to compare rates and terms. You can do so by getting pre-approved. This will allow you to compare multiple loan offers without a hard credit check. You can also utilize loan comparison platforms like Loans Canada to compare products and find the best interest rates and terms possible.   
  • Apply – Once you know which offer you’d like to accept, simply fill out an application and scan the required documents. Most lenders have user-friendly forms and customer support, so you can ask questions and apply without issue.    
  • Get Funded – The qualification and approval process can take a few hours to a few days. Once you’re approved, the funds will be deposited into your account on the same date or within a few business days.  

Frequently Asked Questions

What are the key differences between an installment loan and a payday loan?

The main difference between a payday loan and an installment loan is that an installment loan has 
  • lower rates
  • longer repayment periods
  • lets you borrow more

Can you get an installment loan with bad credit? 

Yes, there are many lenders who provide installment loans that specifically cater to borrowers with bad credit. In fact, the application process for an installment loan is just as fast and easy as a payday loan application. 

What type of loans are installment loans? 

Any lump-sum loan that requires you to repay over a series of periodic payments, is an installment loan. Some installment loans are car loans, mortgages, and personal loans. 

Looking For A Small Loan?

If so, an installment loan can be a lot safer and cheaper than a payday loan. Just make sure your finances are strong enough to cover all your payments. For more information about installment loans and payday loans in your area, check out Loans Canada today.     


Rating of 5/5 based on 3 votes.

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Save With Loans Canada

Special Offers

Borrow $500-$50,000

Borrow $500-$50,000
NEW!

Don’t pay until March with this offer from our partner, Fairstone.* Ends January 31st.

View Offer
Cashback & Bonus Offer

Cashback & Bonus Offer
Ends March 1st, 2023

New Offer! Get up to $2,000 cashback + a $50 bonus on signing up. Conditions apply.

View Offer
Earn 5% Cash Back With Neo

Earn 5% Cash Back With Neo
No annual fee!

Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.

View Offer
Build Credit For $10/Month

Build Credit For $10/Month
Popular

With KOHO’s prepaid card you can build a better credit score for just $10/month.

View Offer
Best Personal Loan Provider by Greedy Rates
Icon

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.