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

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

Need to borrow around $1,000? Find out if you should get a personal loan or short-term loan.

There’s a wide range of loan options available to those who want to borrow money. Each type of personal finance is suited to a different type of borrower and can be used for different purposes — this includes personal loans and short-term cash loans (also known as payday loans).

In this guide we break down the key differences between the two, outline their costs and help you determine which will be the best loan when you want to borrow a small amount of money.

Quick snapshot of three main differences

Short-term loansPersonal loans
AmountCan be as low as $200 or as large as $5,000Usually between $1,000 and $50,000
Collateral requiredNone, usually unsecuredCan be secured or unsecured
CostsFixed finance charges based on your loan amount and state of residence, usually comes out to a few hundred dollarsInterest rates range from 4% for excellent credit to as high as 35.99% for poor credit

Compare personal loans vs. payday loans

Rates last updated April 23rd, 2018
Unfortunately, none of the short term loan providers currently offer loans in your state. Learn more about short term loans in your state to find an alternative.
Name Product Product Description Term of Loan Turnaround Time Maximum Loan Amount
Check into Cash Payday Loan
With 1,000 branches in 30 states, get $50 to $1,000 in days from this direct lender.
Varies by state
1–2 business days
$1,000
LendUp Payday Loans
LendUp offers $250 loans for first-time borrowers. Good credit is not required. Visit the site to see if available in your state.
7–30 days
generally receive the money the next business day
$250
CashNetUSA Loan
Apply for a short-term loan with an easy online application and dedicated customer service.
Varies by state
1 business day
Varies by state
ACE Cash Express Payday Loans
Quick payday, installment and title loans with no prepayment penalty and a 72-hour satisfaction guarantee. Funds can be loaded on an ACE Elite™ Visa® Prepaid Debit Card.
Varies by state
Generally receive the money the next business day
Varies by state
LoanByPhone Payday and Installment Loans
This mobile lender offers convenient cash loans. Apply online or by phone.
Varies by state
1–2 business days
$3,000
BadCreditLoans.com
With straightforward, simple qualifications, these loans offer easy approval for people with poor credit.
3 to 36 months
Varies
$5,000

Compare up to 4 providers

Rates last updated April 23rd, 2018

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Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
Name Product Product Description Min. Credit Score Max. Loan Amount APR
Even Financial Personal Loans
Get connected to competitive loan offers instantly from top online consumer lenders.
580
$100,000
4.99%–35.99% (fixed)
Monevo Personal Loans
Quickly compare multiple online lenders with competitive rates depending on your credit score.
580
$100,000
3.09%–35.99% (fixed)
Upgrade Personal Loans*
Affordable loans with two simple repayment terms and no prepayment penalties.
620
$50,000
5.96%–35.97% (fixed)
Prosper
Borrow only what you need for debt consolidation, home improvements and more — with APRs based on overall creditworthiness.
640
$35,000
5.99%–35.99% (fixed)
LendingClub Personal Loan
A peer-to-peer lender offering fair rates based on your credit score.
660
$40,000
5.98%–35.89% (fixed)
CompareFirst Personal Loans
An easy-to-use loan connection service geared toward introducing first-time borrowers to affordable personal loans.
580
$50,000
2.99%–36% (fixed)
Best Egg Personal Loans
A prime lender with multiple repayment methods.
640
$35,000
5.99%–29.99% (fixed)
FreedomPlus Personal Loans
Consolidate debt and more with these low-interest loans. Cosigners welcome.
640
$35,000
4.99%–29.99% (fixed)
Laurel Road Personal Loans
Get a personal loan with no application or origination fees and a rate discount for autopay.
680
$45,000
5.5%–11.74% (fixed)
LendingPoint Personal Loans
Get a personal loan with reasonable rates even if you have a fair credit score in the 600s.
600
$25,000
15.49%–34.99% (fixed)
NetCredit Personal Loan
Check eligibility in minutes and get a personalized quote without affecting your credit score.
550
$10,000
34%–155% (fixed)
OneMain Financial Personal and Auto Loans
An established online and in-store lender with quick turnaround times. Poor credit is OK.
Varies
$25,000
typically around 18.49%* (fixed)

Compare up to 4 providers

What’s the difference between personal and short-term loans?

There are several key differences between personal loans and short-term cash loans (also known as payday loans) including:

  • Loan amount. You can usually borrow anywhere from $50 up to $1,000 for a payday loan — some offer loans as high as $5,000. Personal loans come with much higher maximum loan amounts that can be as high as $100,000.
  • Eligibility. Personal loans offered by banks and credit unions have strict eligibility criteria that often includes good credit and a regular income. Cash lenders that offer short-term loans are much more flexible and will consider those with bad credit, those who receive government benefits as income or people who are unemployed.
  • Lenders. Personal loans are offered by banks, credit unions and online direct lenders. Short-term loans tend to be offered by online lenders specializing in only that type of product.
  • Cost. Personal loans will be cheaper overall, but you’ll have to have credit in order to be approved. While payday loans have a quick approval process and can grant funds faster, you’ll undoubtedly pay for this convenience.
  • Loan term. Cash loans come with much shorter terms, usually between a few days and a year (depending on the loan amount). Personal loans, on the other hand, come with a minimum loan term of one year and a maximum of between five, seven and some even extend to 10 years.

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

Personal loans don’t come with APRs higher than 36%. On the other hand, short-term loans can come with APRs in the thousands. It’s important to note that the annual percentage rate calculates yearly cost. If you decide to get a short-term loan and repay it in one month, the actual dollar amount you pay on top of what you borrow may be a better representation of costs.

The cost of a personal loan can be based on your credit history, if you’re offering an asset as collateral, the term length of the loan and more. Payday loan costs vary by state and lender but are often a high-cost product that lends money almost immediately with little to no credit check.

Short-term loan costs

  • For every $100 borrowed, the cost of a payday loan repaid in less than a month is just around $25.
  • For every $100 borrowed, the cost of an installment loan repaid over a few months is just around $15.
  • The average term of a payday loan is two weeks and it can have APRs ranging from 380% to over 1,000%.

Personal loan costs

  • Unsecured personal loan interest rates will generally be a bit higher than their secured loan counterparts because there is no asset as security attached to the loan. For a $2,000 loan with an 8% APR, you could expect to pay a little over $250 interest.
  • Peer-to-peer loans tend to come with comparable rates that are based on your credit score. Rates can be as low as 5% or as high as 35.99%.

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

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

  • How much money do I need to borrow?
    If you need to borrow between $50 and $1,000, a short-term loan is better suited for you, as 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. If you need money by tomorrow, a short-term loan could be a better fit.
  • How is my credit history?
    If you have good to excellent credit and regular income, you could stand to save money by getting a low-interest personal loan rather than a high-cost short-term 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 what’s most affordable for you.

How does a personal loan and short-term loan affect my credit score?

Payday lenders for short-term loans usually don’t send your loan information to the three main credit reporting agencies. However, they may send your loan terms and repayment information to smaller credit agencies that can be accessed by mainstream lenders when you’re applying for a loan. Personal loan lenders do report your information to the three main credit reporting agencies. For both personal and short-term loans, the most important thing to do is make your repayments on time. If you don’t, your credit score will be negatively affected.

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US Payday Loans Offers

Important Information*
Slam Dunk Loans

Potentially get approved for a short-term loan through this lender-connection service, even with poor credit history.

LendUp Payday Loans

LendUp offers $250 loans for first-time borrowers. Good credit is not required. Visit the site to see if available in your state.

Check into Cash Payday Loan

With 1,000 branches in 30 states, get $50 to $1,000 in days from this direct lender.

OppLoans Installment Loans

Installment loans with competitive rates from a top-rated direct lender.

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