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Payday Loans vs Personal Loans

Trying to decide between a payday loan and a personal loan?

Here is what you need to know about these two very different short-term loan options.

Payday Loans

A payday loan is a very short-term, high-cost loan that gives cash-strapped consumers the money they need until their next paycheck.

Payday lenders will ask about your job status and sources of income when you apply for a payday loan. And you will need to submit a post-dated check to cover the amount of the loan, plus a finance fee charged by the payday lender, once money from your paycheck arrives into your account on payday.

If you don’t pay off the loan in its entirety, you’ll be hit with additional fees and finance charges.

When you apply for a payday loan, a lender does not typically check your credit, so applying for a payday loan will typically not impact your credit score.

A payday loan may be a convenient way to get cash for consumers who don’t have savings accounts or credit cards, but it is a very costly way to borrow. And because of the high fees and finance charges associated with payday loans, there’s a risk of falling into a long cycle of debt.

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Personal Loans

A short-term personal loan has a fixed interest rate and fixed repayment period. Unlike payday loans, lenders make an inquiry into your credit when you apply for a personal loan. And

each loan inquiry lowers your credit score a little bit.

Credit unions can be good places to shop for a personal loan since they may have more lenient lending requirements and may be more willing to offer a short-term personal loan if you have less-than-stellar credit. Local banks and credit card companies are other sources of personal loans.

Before shopping for a personal loan, it’s a good idea to check your credit score with’s free Credit Report Card. Once you know your credit score, research a lender’s minimum credit requirements to see if your score will qualify you for a loan.

Rather than apply for a number of personal loans, which would lower your credit score, apply for loans from one or two issuers that you know and trust.

Many online lenders offer personal loans to people who have less-than-perfect credit but not all can be trusted. Some of these websites are advance fee loan scams. The Federal Trade Commission lists some red flags to watch out for, among them: If a lender demands an up-front fee, and doesn’t clearly disclose and prominently display what fees apply; also, if they pressure you to wire money to them. Do your research and shop wisely.

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Category: Payday loans

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