Comparing Payday Loans and Personal Loans: What’s the Difference?

Aman researches the difference between payday and personal loans.

Navigating the world of loans can feel like doing your taxes while skydiving—intimidating and confusing. Adding to the difficulty, the type of debt you incur has a major influence on every aspect of the repayment process. But don't worry! We are here to help you understand the difference between payday loans and personal loans. By the end of this guide, you will be ready to make the best decision about borrowing money.

What are Payday Loans?

Payday loans, also sometimes called "check loans" or "cash advances," are short-term, high-interest loans designed to cover urgent expenses until your next paycheck. Typically offered by payday lenders, check-cashing services, and online platforms, they are easy to get and quick to process, making them a go-to for immediate financial fixes. But as tempting as they are, they come with their own set of conditions.

Pros and Cons of Payday Loans


  • Quick Access: You can often access the money within 24 hours.
  • Easy Approval: They have more relaxed credit checks, meaning quicker approval.
  • No Long-Term Commitment: Payments are usually due within a couple of weeks, highlighting the loan’s short-term nature and streamlined process. This means you can settle the loan quickly and move on!


  • High Interest Rates: The Annual Percentage Yield (APR) can be extremely high, sometimes exceeding 400% according to the Consumer Financial Protection Bureau.
  • Short Repayment Period: You need to pay back the loan quickly (usually by your next paycheck), which leaves you with limited time to gather the necessary funds.
  • Risk of Debt Cycle: High fees, such as $15 for every $100 borrowed, and short terms can trap borrowers in a cycle of debt. Other added expenses may include late fees, rollover fees, returned payment fees, or prepaid debit card fees.

Who Should Consider Payday Loans?

Payday loans are generally suitable for people who need a small amount of cash urgently and are confident they can repay it quickly. If you can't pay it off, it can lead to serious financial trouble. Due to their high costs and risks, payday loans are considered predatory and therefore banned in many states. Therefore, you should only explore them as a last resort.

What are Personal Loans?

Personal loans are medium- to long-term installment loans offered by banks, credit unions, and online lenders. They typically range from a few hundred to several thousand dollars and can be secured or unsecured. These loans can be used for various personal expenses, ranging from debt consolidation to emergencies.

Pros and Cons of Personal Loans


  • Lower Interest Rates: Generally, the interest rates are much lower than payday loans, especially if you have good credit.
  • Fixed Monthly Payments: Having consistent, fixed monthly payments allows for more predictable budgeting and financial planning, reducing the stress of unexpected expenses.
  • Longer Repayment Terms: Stretching from 6 months to several years, these terms offer borrowers more wiggle room and easier payment plans to fit their financial groove.


  • Stricter Approval Process: Personal loans require a good credit score and proof of income. Lenders usually look for these to make sure you can pay back the loan, which can make it tough for some folks to qualify.
  • Time to Access Funds: It could take a few days to receive the money. Once approved, the funds are deposited into your bank account, but this process can take anywhere from a few days to a week, depending on the lender.
  • Potential Fees: There might be some fees to keep in mind, like origination fees and prepayment penalties. Origination fees usually cover the cost of processing your loan, while prepayment penalties can happen if you pay off your loan early. These can add to the overall cost, so it's good to be aware and understand your terms!

Who Should Consider Personal Loans?

Personal loans are ideal for those with a good credit score looking for a higher loan amount and longer repayment terms. They are also great for consolidating debt at a lower interest rate, funding home renovations, paying for education, covering medical expenses, financing a dream vacation, and more!

Comparison: Payday Loans vs Personal Loans

What are the main differences between payday and personal loans? It boils down to four main points:

1. Interest Rates and Fees

As mentioned, payday loans often come with very high interest rates, sometimes exceeding 400% Annual Percentage Yield (APR), while personal loans typically have much lower rates, usually between 5% and 36% APR. Origination fees for personal loans can add to the cost, but they're usually much lower than payday loan fees.

2. Application Process and Requirements

Payday loans are easy to get with minimal credit checks, while personal loans require a good credit score, proof of income, and a more detailed application process. Payday loans offer quick access, compared to the few days for personal loans to process.

3. Impact on Credit Scores

Payday loans typically won’t affect your credit score unless you miss a payment. Personal loans, on the other hand, can either boost or lower your score based on how you manage repayments. Making timely payments can give your score a nice bump, while missed payments might bring it down.

4. Repayment Terms and Flexibility

Payday loans have short repayment terms, usually due by your next paycheck, making them less flexible and a bit riskier. On the other hand, personal loans offer longer repayment periods, making it easier to manage your monthly budget without the stress of immediate repayment.

Should I Choose a Payday Loan or a Personal Loan?

Understanding the differences between payday and personal loans can save you a lot of stress and money. Payday loans might seem like a quick fix, but they can trap you in a cycle of debt with high fees and short terms. On the other hand, personal loans offer lower interest rates and more manageable repayment terms, making them a smarter choice for most financial needs, even for a small loan.

If you are considering a personal loan, why not explore Academy Bank’s Express Loan? It’s a great alternative to payday loans, has an easy application process, AND you can borrow between $250 and $15,000.

Ready to get started? Apply for a personal loan today and take control of your finances!

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Subject to credit approval. Restrictions Apply. Direct deposit relationship required. Origination fee applies, 10% or $100 whichever is less. Annual Percentage Rate (APR) is based on credit score. Only one personal loan allowed to any borrower at any time. Loan terms are based on the loan amount.