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Personal loans vs. payday loans: Which is right for you?

Before you sign on that dotted line, learn which option will be better for your finances.

Personal loans and payday loans may seem similar on the outside, but there are quite a few big differences that set these two options apart. Depending on your credit and the amount you need to borrow, you’ll want to know what you qualify for before you apply.

What are the key differences between a personal loan and a payday loan?

Personal loans and payday loans may both be useful when you need an extra boost to your finances, but that’s about where the similarities end. Loan amount, loan term and cost — among other factors — vary widely between these two options.

  • Loan amount. You may be able to borrow as much as $100,000 with a personal loan, though most lenders only offer around $50,000 to borrowers with excellent credit. With a payday loan, you can typically borrow anywhere from $50 to $1,000 — but some offer loans up to $5,000.
  • Cost. Personal loans will be cheaper overall — with interest rates that cap out at around 36% — but you’ll have to have good to excellent credit. Payday loans are generally much more expensive, but they don’t have strict credit requirements.
  • Loan term. Personal loans often have a minimum term of 12 months and can last as long as 7 to 10 years. Payday loans, on the other hand, have short terms of two to four weeks.
  • Eligibility. Personal loans offered by banks and credit unions have strict eligibility criteria, often requiring borrowers to have good credit and a strong financial background. Payday loans are much more flexible, and lenders usually only require that borrowers have a regular source of income to qualify.
  • Lenders. Personal loans are offered by banks, credit unions, online lenders and peer-to-peer lenders. Payday loans tend to be offered by lenders that specialize in short-term lending and check-cashing services.

Quick snapshot: Personal loans vs. payday loans

Personal loansPayday loans
AmountUsually between $5,000 to $50,000Usually between $200 to $1,000
Cost4% to 35.99%, depending on the lender and your credit scoreFixed finance of $10 to $20 per $100 borrowed
Repayment period2 to 5 years2 to 4 weeks

Compare personal loans vs. payday loans

Name Product Filter Values APR Min. Credit Score Loan Amount
BHG personal loans
$20,000 - $200,000
A highly-rated lender with quick turnaround and reliable customer service.
Credible personal loans
2.49% to 35.99%
Fair to excellent credit
$600 - $100,000
Get personalized rates in minutes and then choose an offer from a selection of top online lenders.
Best Egg personal loans
5.99% to 29.99%
$2,000 - $50,000
A prime online lending platform with multiple repayment methods.
PenFed Credit Union personal loans
5.99% to 17.99%
$600 - $50,000
With over 80 years of lending experience, this credit union offers personal loans for a variety of expenses.
SoFi personal loans
4.99% to 19.63%
$5,000 - $100,000
A highly-rated lender with competitive rates, high loan amounts and no fees.
Monevo personal loans
1.99% to 35.99%
$500 - $100,000
Quickly compare multiple online lenders with competitive rates depending on your credit.
Tally+ Express
7.9% to 29.99%
$2,000 - $30,000
Consolidate your debt and get a personalized plan for managing it with a Tally+ credit line.
Upgrade personal loans
5.94% to 35.97%
$1,000 - $50,000
Affordable loans with two simple repayment terms and no prepayment penalties.
Avant personal loans
9.95% to 35.99%
$2,000 - $35,000
Conveniently check your loan options without affecting your credit score.

Compare up to 4 providers

Name Product Filter Values Loan amount Turnaround time Requirements
B9 pay advance app
Up to 100% of your salary
$500+ in monthly direct deposits into B9 account, checking account, ITIN or SSN, government-issued photo ID
Withdraw 100% of your paycheck with no extra fee for instant funding.
OppLoans Installment Loans
$500 to $5,000
1 business day
Direct deposit, meet minimum income requirements, live in eligible state
Comes with the option to change your due date so you won’t fall behind on repayments.
$1,000 to $25,000
2 to 3 business days
Be employed, have a US bank account, live in a state where Stilt operates, hold one of the following visas: F-1 and OPT, H-1B, H4, O-1, L-1, TN, J-1, DACA or be a US citizen.
Get a fair loan designed for immigrants and nonresidents.
CashNetUSA Loan
Varies by state
As fast as same business day
Regular source of income, bank account, US citizen or permanent resident, age of majority in your state
Sign up for its discount program to get access to coupons and deals on everything from dining out to tax services.
Fast5kLoans Short-term Loans Connection Service
$100 to $35,000
As soon as the next business day
Regular source of income, verifiable bank account, US citizen, ages 18+
Get connected with multiple lenders you might qualify with — even if you have bad credit.

Compare up to 4 providers

How much will each option cost?

The cost of each product varies widely between lenders and the state you live in.

For a personal loan, you won’t have to pay more than 36% when you borrow. This is still a high interest rate, but it’s much lower than what you’ll get with a payday loan or other short-term loan. The exact interest rate you receive — along with your terms — will be based on your credit history, if you have collateral, the amount you want to borrow and the term of the loan.

On the other hand, payday loans can have APRs with three — or even four — digits. The actual cost will depend on the state you live in. However, it’s important to note that APR represents yearly cost. Most lenders also represent the cost of a loan as a fee you pay per $100. But no matter how it’s shown, payday loans are still more expensive than personal loans.

How can I decide which type of loan is right for me?

Deciding between a personal loan and a payday loan will likely depend on the amount you need to borrow as well as your credit. Asking yourself the following questions will help you decide which is the best choice.

  • How much money do I need to borrow?If you need to borrow between $50 and $1,000, a short-term loan may be better because personal loans tend to have minimums between $1,000 and $2,000.
  • How fast do I need the money? Short-term loans usually have faster turnaround times than personal loans because less is involved in the approval process. However, many personal loan providers are moving online, so quite a few have the same processing speeds as short-term lenders.
  • How is my credit history? If you have good to excellent credit, you could stand to save money by getting a low-interest personal loan rather than a high-cost payday loan.
  • How much will it cost me? Ultimately, it comes down to your monthly payments and total repayment amount. Be sure to compare multiple options and explore those lender’s online calculators to see which is most affordable for you.

Must read: Are there any alternatives to payday loans?

There are quite a few ways to borrow a small sum of money without taking out a payday loan. These include:

  • Payday alternative loans. Payday alternative loans are highly regulated to keep costs down. APRs max at 28% — lower than the personal loan max of 36% — and you can borrow up to $1,000 from multiple national credit unions.
  • Installment loans. Installment loans are also short-term loans, but rather than repay what you borrow in one lump sum, you’ll have a few months to repay your loan. However, these can still be expensive, so read your lender’s terms carefully before borrowing.
  • Pay advance apps. There aren’t many pay advance apps out there — yet. But these are quickly gaining steam because they allow you to borrow money against your paycheck without the high fees associated with payday and other short-term loans.

Of course, your options don’t stop there. Check out our guide to payday loan alternatives to learn more.

Bottom line

There are quite a few big differences between personal loans and payday loans, so you’ll want to be prepared when you’re looking to borrow. You can read up on personal loans and check out our guide to payday loans to make sure you’re making the right financial decision.

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