Payday Loan vs. Personal Loan: Which One Costs You Less?

Payday loans and personal loans are both ways to borrow money, but they work differently in terms of costs, fees and repayment. Payday loans are typically small loan amounts between $100 and $500 and are generally repaid at your next pay date. Personal loans are for larger amounts with lower annual percentage rates (APRs) and longer repayment terms.

Not sure whether a payday loan or personal loan fits your situation? Here's what you need to know before you borrow.

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The main difference between a payday loan and a personal loan is cost and structure.

• A payday loan is a small, short-term advance — usually a few hundred dollars — that you repay in one lump sum on your next payday at a triple-digit APR.

• A personal loan is a larger installment loan you repay in fixed monthly payments over one to seven years at a much lower APR.

Personal loans almost always cost less than payday loans. A $500 payday loan with a $75 fee due in two weeks costs roughly the same as a $500 personal loan at a 20% APR repaid over 12 months, but the personal loan gives you significantly more time to repay the balance.

Payday loans only make sense and are worth it if you can pay back every dime by your next paycheck.

Key Takeaways

• Payday loan APRs run near 400%, versus about 12% for a personal loan. The Consumer Financial Protection Bureau (CFPB) cites the roughly 400% figure, while the Federal Reserve reports about a 12% average on a 24-month personal loan. Personal loans usually cost less once you borrow more than a couple hundred dollars.

• Payday loans come due in two to four weeks, while personal loans stretch 12 to 84 months. That lump-sum payoff can trigger rollover fees, but a personal loan spreads fixed monthly payments over a longer term.

• Payday loans top out around $500, versus $1,000 to $50,000 for personal loans. Choose a personal loan if you need a larger amount, want to build credit or prefer predictable payments. Consider a payday loan only for a true emergency you can fully repay on payday.

• About 80% of payday loans are rolled over or followed by another loan within two weeks. A personal loan's fixed schedule and credit reporting can help you avoid that cycle and build credit over time.

Summary generated by AI, verified by MoneyLion editors

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What Is a Payday Loan?

A payday loan is a small, short-term loan — typically $100 to $500 — that you repay in one payment on your next payday, usually within two to four weeks. According to the CFPB, payday loan APRs commonly run around 400%.

What Is a Personal Loan?

A personal loan is an installment loan from a bank, credit union or online lender. Loan amounts usually range from $1,000 to $50,000 and are repaid with fixed monthly payments over one to seven years. Personal loan APRs typically range from 6% to 36%, according to Federal Reserve data. 

How Each Loan Works, Step by Step

How a Payday Loan Works

1. You apply for a payday loan in person or online with proof of income and a bank account.

2. The lender approves you the same day, often without a credit check.

3. You receive $100 to $500 in cash or by direct deposit.

4. You write a postdated check or authorize an automatic debit for the loan amount plus fees.

5. The lender pulls the full balance from your account on your next payday, usually within two to four weeks.

How a Personal Loan Works

1. You compare lenders and check your rate with a soft credit pull.

2. You submit a full application for a personal loan with income, employment and credit details.

3. The lender runs a hard credit check and sets your APR based on your credit score.

4. You receive the funds via direct deposit, typically within one to five business days.

5. You repay the loan in fixed monthly payments over one to seven years. 

Stats To Know

The average payday loan is over $300. In the 30 states that allow payday lending, borrowers paid an estimated $2.4 billion in fees over a one-year period, according to the Center for Responsible Lending.

The CFPB reports that a typical two-week payday loan carries an APR of nearly 400%, and about 80% of payday loans are rolled over or followed by another loan within 14 days. By comparison, the Federal Reserve reports an average personal loan APR of roughly 12% for a 24-month loan.

Do Payday Loans Check Your Credit?

Payday lenders don’t typically check your credit. Instead, they review your proof of income and whether or not you’ve got an active checking account.

Payday lenders also don’t report timely payments to the credit bureaus. However, if you default on your payments, your account can go to collections and that activity will be reported to the credit bureaus.

Pros and Cons of Each Loan Type

Before borrowing, consider the pros and cons of payday loans and personal loans.

Payday Loans Pros and Cons

Personal Loans Pros and Cons

How Much Does a Payday Loan Cost vs. a Personal Loan?

APR is the best way to compare the cost of different loans because it includes interest and certain fees. Although payday loans may seem inexpensive at first, their short repayment terms cause their APRs to climb dramatically.

Payday Loans

• You're borrowing money for a matter of weeks, not months or years.

• Lenders typically charge $10 to $30 for every $100 you borrow.

• Those fees can translate to an APR of 400%, even though the dollar fee may be relatively small.

Personal Loans

• Charge interest over time rather than a flat fee.

• May also include an origination fee of 1% to 10% of the loan amount.

• Carry APRs that usually range from 6% to 36%, depending on your credit profile.

Example: How Fees and Repayment Work on Personal Loans vs. Payday Loans

For a payday loan, say you need $500.

• You'll borrow $500 from the payday loan lender.

• This loan charges a $75 fee for a two-week term and works out to an APR of nearly 400%.

• Your total repayment due by your next paycheck is $575.

• If you have to push back the repayment, you'll be hit with a $75 rollover fee. 

For a personal loan of $500 with 20% APR and a 12-month term:

• You'll need to factor in a 5% origination fee of about $25.

• You can make monthly payments of around $46.

• You pay roughly $55 in total interest.

• Your all-in cost is about $80 over the year.

That's comparable to the payday loan fee, but spread across 12 months instead of two weeks.

Don't Focus Only on APR

Ultimately, APR alone doesn't tell the full story. The true cost of borrowing depends on both the interest rate and how long you carry the debt.

• A payday loan's triple-digit APR can be manageable if you repay it quickly, but incredibly expensive if you roll it over.

• A personal loan's lower APR compounds over time, so the longer your term, the more you'll pay in total interest.

Should You Pay Off a Loan All at Once or Over Time?

Here's a breakdown of your options:

Lump Sum Repayment

With a payday loan, you'll need to repay the entire amount you borrowed, plus fees, as a lump sum once you receive your next paycheck.

Rollover

If you can't, you'll have to roll over your payment, which means you'll be charged an additional fee, usually the same amount you originally paid to borrow.

For example, if you borrowed $500 and were charged a $75 fee, rolling over the loan once means you've now paid $150 in fees and still owe the original $500. 

Another Potential Concern With Payday Loans

Payday lenders usually require you to link the account that receives your paycheck so they can automatically debit the repayment once your paycheck clears.

You Don't Have Enough Money

If you don't have enough money in your account when the lender tries to collect repayment, you could be charged overdraft fees by both the lender and your bank. These snowballing fees are what make payday loans dangerous.

Collection Efforts

Plus, if you fall far enough behind on repaying a payday loan, the lender can sell your debt to a third-party collections agency, which will continue the effort of trying to secure your repayment. Not only is this stressful, but it also has negative consequences for your credit that can stay on your credit report for a few years.

What To Consider With Personal Loans

While you may end up paying more in interest over time with a personal loan, the benefit is that you repay the funds with fixed monthly payments rather than a lump sum due within just two weeks of borrowing. This repayment structure is often easier to fit into your budget, which could reduce the risk of falling behind on payments. 

Plus, with a personal loan, you often have more options even if you're not able to repay the funds in time. Many lenders offer hardship programs, and borrowers who reach out when they realize they can't make a payment may be able to negotiate adjusted repayment terms that better fit their current financial situation, though it isn't guaranteed.

That's not to say there's no credit risk with a personal loan — lenders can still transfer your debt to collections if you go long enough without repaying, and you don't reach out to the lender to discuss your options.

When Does a Personal Loan Make More Sense Than a Payday Loan?

If you need to borrow money and you're trying to decide between a payday loan and a personal loan, you can use the following guidelines to help narrow down your choice.

Alternatives to Payday Loans

Also, keep in mind that payday loans and personal loans aren't your only options. You can also consider the following:

Final Take: Payday Loan vs. Personal Loan

Payday loans offer quick access to cash, but they come at a steep price, and you’ll need to pay the money back quickly as one lump sum. With personal loans, you'll have more time to repay the funds you borrowed, and you’ll pay a more reasonable interest rate.

Before you decide on the right option for you, compare the total cost, including all fees, and make sure you know exactly how much you’re expected to pay and when.

FAQs

What's the main difference between a payday loan and a personal loan?

Payday loans have significantly higher APRs and require repayment in full by your next paycheck, whereas you can repay a personal loan in monthly installments over a longer period of time.

Is a payday loan or a personal loan easier to get?

A payday loan is easier to get. Most payday lenders skip the credit check and approve you based on income and a bank account. Personal loans require a credit check and usually a fair-to-good credit score.

Which loan is more affordable?

Making either a personal loan or a payday loan more affordable depends on how quickly you can repay it. Personal loans usually have lower interest rates than payday loans. You may end up paying less out of pocket with a payday loan if you don't have to roll over your repayment date.

Can you have a payday loan and a personal loan at the same time?

Yes. Nothing stops you from holding both at once if each lender approves you. Just remember that stacking loans raises your total monthly debt payments and can hurt your credit and budget.

Do payday loans build credit?

No. Most payday lenders do not report on-time payments to Equifax, Experian or TransUnion, so paying a payday loan back will not raise your credit score. 

Can payday loans hurt your credit?

Payday loans can hurt your credit if you don't repay them, and the lender sells your debt to a collection agency. This will result in a negative mark on your credit report, which can damage your credit score and remain there for a few years.

What credit score do you need for a personal loan?

Most personal loan lenders require a score of at least 580, and the best rates typically go to borrowers with scores of 670 or higher. Some online lenders work with lower scores but charge higher APRs.

Key Terms

• APR: The yearly cost of borrowing, including interest and certain fees, shown as a percent so you can compare loan costs more easily.

• Origination fee: A one-time lender fee charged for processing a personal loan, often 1% to 10% of the amount you borrow.

• Rollover fee: A fee charged when you extend a payday loan instead of repaying it on time, which can quickly raise your total borrowing cost.

• Lump-sum repayment: Paying back the full loan amount plus fees all at once, usually by your next paycheck with a payday loan.

• Installment loan: A loan repaid through fixed monthly payments over time, which is how most personal loans are structured.

Summary generated by AI, verified by MoneyLion editors

Sources

• Consumer Financial Protection Bureau. 2024. "What is a payday loan?"

• Consumer Financial Protection Bureau: What is a personal loan?

• MyCreditUnion.gov. "Payday Alternative Loans."

• National Credit Union Administration (NCUA). 2024. "Permissible Loan Interest Rate Ceiling Extended."

• Consumer Financial Protection Bureau. 2024. "What is a personal installment loan?"

• Center for Responsible Lending. 2025. "Down the Drain: Payday Lenders Take $2.4 Billion in Fees from Borrowers in One Year."

• Federal Reserve Bank of St. Louis. 2026. "Bankrate Monitor (BRM): Unsecured Personal Loan Rate (BRMUPL01)."

• Federal Reserve Bank of St. Louis. 2026. "Finance Rate on Personal Loans at Commercial Banks, 24 Month Loan (TERMCBPER24NS)."

Information is accurate as of July 13, 2026.

Sarah Silbert contributed to the reporting for this article.