What is a personal loan?
A personal loan is typically an installment loan you repay over time (often months to years) with a fixed monthly payment. Many personal loans have fixed interest rates and a clear payoff date, making them easier to budget for than short-term, high-fee borrowing.
Approval and pricing usually depend on your credit profile, income, and debt-to-income ratio. Some lenders offer prequalification so you can check potential rates without committing.
What is a payday loan?
A payday loan is usually a small, short-term loan designed to be repaid by your next paycheck—often in 2–4 weeks. The “cost” is frequently expressed as a fee per $100 borrowed, which can translate into a very high annual percentage rate (APR).
Because the repayment window is short, payday loans can be difficult to repay on time. Some borrowers end up renewing or rolling over the loan, which can add fees and extend the debt.
Key differences at a glance
Personal Loan
- Installment payments over months/years
- Often lower APR than payday loans
- Clear payoff date and monthly payment
- May require stronger credit/income
- Can be used for debt consolidation or large expenses
Payday Loan
- Short-term (often due next paycheck)
- Fees can translate to very high APR
- Small loan amounts, fast access
- Risk of rollovers/renewals and repeated fees
- Can be hard to repay quickly without re-borrowing
Tip: If two loans have different fee structures, compare them using APR and total cost. The “cheapest” option is often the one with the lowest total repayment amount—not just the smallest upfront fee.
Pros and cons of personal loans
Pros
- Predictable monthly payments
- Often lower cost than payday loans
- Repayment over time can be more manageable
- Can help consolidate higher-interest debt
Cons
- Approval may take longer than payday loans
- Rates depend heavily on credit and income
- Some loans include origination fees
- Late payments can hurt your credit
Pros and cons of payday loans
Pros
- Fast access to small amounts of cash
- Simple application requirements
- May not require strong credit
Cons
- High fees that can become very expensive
- Very short repayment window
- Rollovers/renewals can increase total cost
- May lead to repeated borrowing cycles
When a personal loan usually makes more sense
- You need more time to repay than a couple of weeks.
- You want a fixed monthly payment and clear payoff date.
- You’re consolidating multiple debts into one payment.
- You can qualify for a reasonable rate based on credit/income.
When a payday loan might be considered (with caution)
In general, payday loans are a last-resort option. If you’re considering one, it helps to be realistic about repayment. If you can’t repay the full amount by the due date, fees can add up quickly.
Before choosing a payday loan, consider alternatives like payment plans, credit union options, borrowing from family (with clear terms), or community assistance programs.
Final verdict
For most people, a personal loan is the safer, more predictable option—especially if you can qualify for a competitive rate and repay over time. Payday loans are often expensive due to short repayment windows and repeated fees, so they’re typically best avoided when possible.
Related guides
See How a Personal Loan Could Lower Your Costs
Use our personal loan calculator to estimate monthly payments and compare the total cost against short-term, high-interest options.
Try the Personal Loan Calculator →