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Personal loans vs payday loans

Discover the difference between personal loans and short-term loans and learn which is best for you.

There is a wide range of loan options available to those in need of money. Each type of personal finance suits a different kind of borrower and be of use for different purposes, and this includes personal and online cash loans. In this guide, we break down the principle differences between the two, outline their costs and help determine which is the best loan for your need and situation.

Payday loansPersonal loans
  • Can be a small loan (below $1,000), medium loan ($2,001-$5,000) or a large loan (over $5,000).
  • Usually unsecured.
  • Come with higher-interest rates and fees compared to personal loans.
  • Loan amounts differ, but you can usually find lenders offering between $5,000 and $100,000.
  • Can be secured, unsecured or a line of credit.
  • Interest rates differ depending on whether you provide security, but they usually range anywhere between 7% and 27% p.a. (although it can be higher).

Learn about more of the differences in fees and features in the guide below the table.

⚠️ Warning: be cautious with short-term loans

If you're experiencing financial hardship and would like to speak to someone for free financial counselling, you can call the MoneyTalks helpline operated by FinCap on 0800 345 123. It is open from 8:00am to 5pm, Monday to Friday and 10am to 2pm Saturday. When comparing short term loans, ensure you take into consideration any fees, charges and rates you may be charged.

Alternatives to short-term loans

Consider these alternatives before applying for a payday loan:

  • Use online Government resources. The Commerce Commission New Zealand website explains how loans works and what to be aware of when borrowing from a lender.
  • Payment plans. Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan or receive an extension on your due date if you’re behind on payments.
  • Contact your creditors. Speak with creditors about extending the due date of your payment, or working out a new payment plan that works for both of you. Seek personal loans elsewhere. Consider a small personal loan from a bank or a credit union. You may qualify for a loan with much lower interest rates than those offered by payday loan companies.
  • Pay with credit card. Consider paying with your credit card to cover your emergency bills or payments. This is not a long term solution, as you’ll need to pay off the balance as soon as possible, but it’s an alternative to a short term loan with high – and immediate – interest rates.

Compare payday loans and personal loans

Name Product Max Loan Amount Loan Term Turnaround Time Loan Interest Establishment Fee Account Administration Fee
Moola Loan
90 - 182 days
Often available in under 60 minutes
292% p.a.
(fixed for the term of the loan)
Eligibility: Be 18 or over, be in employment and be a New Zealand citizen, permanent resident or have a valid working visa.
Borrow up to $1,500 and enjoy a flexible repayment plan.
Save My Bacon Flex Loan
12-36 months
Same day
49.95% p.a
Eligibility: Be 18 or over, have an income of at least $400 per week and be a NZ citizen, permanent resident or have a valid work visa.
Medium term loans from $2,000 to $5,000 with no hidden fees.

Compare up to 4 providers

Name Product Interest Rate (p.a.) Min. Loan Amount Max. Loan Amount Loan Term Monthly Service Fee Establishment Fee
The Lending People Personal Loan
6.95% - 26.95%
1 to 7 years
$0 - $10 depending on lender
$50 to $695 depending on lender
Eligibility: Be 18+, an NZ citizen or permanent resident, in employment and earning at least $500 per week.
Secured and unsecured loans of up to $75,000 from a variety of reputable lenders.
Harmoney Unsecured Personal Loan
6.99% - 19.99%
3 or 5 years
Eligibility: Be a NZ resident/citizen and have a good credit score.
Apply for an unsecured personal loan up to $70,000 with no early repayment fees.
FROM 6.99%
The Co-operative Bank Unsecured Personal Loan
6.99% - 19.99%
6 months to 5 years
Eligibility: Be 18+, an NZ citizen/permanent resident, or have a valid work visa.
Floating-rate, unsecured personal loans from $3,000.
Lending Crowd Personal Loan
5.03% -19.30%
2, 3 or 5 years
$200 - $500 depending on the amount borrowed
Eligibility: Be a NZ resident/citizen and have a good credit score.
Secured and unsecured personal loans from $2,000 to $200,000. 100% online with no paperwork or early repayment fees.
Nectar Unsecured Personal Loan
8.95% - 29.95%
6 months to 4 years
Eligibility: Must be 18+, an NZ citizen or permanent resident, have an income of $400 per week or more (after tax) and a stable credit history.
Unsecured loans from $1,000 with payouts made within one day of approval. Applications entirely online.
Save My Bacon Unsecured Flex Loan
12 to 36 months
Eligibility: Be 18 or over, have an income of at least $400 per week and be a NZ citizen, permanent resident or have a valid work visa.
Medium-term unsecured loans from $2,000 to $5,000 with no hidden fees.
Gem Secured Personal Loan
6.99% -18.99%
6 months to 7 years
Eligibility: Be 18+, a permanent NZ resident and earning a stable income.
Secured personal loans with weekly, fortnightly or monthly repayment schedules and no fees for early repayment.
Kiwibank Unsecured Personal Loan
13.95% - 18.95%
6 months to 7 years
Eligibility: Be 18+, an NZ citizen/permanent resident, and have a stable income. Ts&Cs apply.
Unsecured personal loans from $2,000

Compare up to 4 providers

What’s the difference between personal and payday loans?

There are several fundamental differences between personal loans and short-term cash loans:

  • Loan amount. You can borrow up to $5,000 from some cash lenders. However, personal loans come with higher minimum and maximum loan amounts, and lenders don’t usually provide loans below $5,000 but may have a maximum of $80,000 to $100,000.
  • Eligibility. Personal loans on offer from a bank or credit union have strict eligibility criteria, which often includes good credit and a regular income from employment, or earnings above a specific amount. Cash lenders that offer short-term loans are more flexible and will consider those with bad credit, people who receive Work and Income payments, or those that are unemployed.
  • Lenders. Banks; credit unions; building societies and standalone lenders offer personal loans. Lenders that specialise in payday loans tend to offer those products.
  • Loan term. Cash loans come with much shorter terms, usually between 2 days and one year (depending on the loan amount). Personal loans typically come with a minimum loan term of one year and a maximum of between five and seven years.

What is the cost difference between a personal loan and a short-term loan?

Lenders in New Zealand have an obligation to lend responsibly and are regulated by the Credit Contracts and Consumer Finance Act 2003.

Payday loan costs
  • New Zealand is not bound by as much regulation for payday lending as other countries, so please be wary who you borrow from and make sure you check the lender’s website and product disclosure statement (PDS) closely before you sign up for any loan.
Personal loan costs

How can I decide which type is right for me?

While there are similarities between the two products, there are stark differences as well. Asking the following questions will help you decide which type of loan is right for you:

  • How much do you need to borrow? Personal loans allow you to apply for a more significant amount, while cash lenders usually have maximum amounts of $2,000 (although some lenders will provide loans of up to $10,000).
  • When do you need the money? Cash lenders offer a quick turnaround for a loan and can have funds in your bank account by the next business day. Some personal loan providers offer same-day turnaround for existing customers but the usual wait time is a few days to a few weeks.
  • How is your credit history? Online cash lenders have more flexible eligibility criteria than providers offering standard personal loans, so you may still be able to apply for a cash loan if you have bad credit or a low income. Personal loans come with more stringent eligibility criteria. The majority of loan providers require you to have good credit and usually have a minimum income requirement to show you can repay the loan.
  • What can you afford to repay? Short-term cash loans come with much higher rates and fees, meaning higher payments. You will repay the money over a shorter period, but you need to determine your ability to afford the repayments. Personal loans come with lower rates and fees, and as you pay them over a longer term, they may make for more manageable repayments.

Picture: Shutterstock

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