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Personal loans vs payday loans

Find out the differences between personal loans and short-term loans and how to compare them

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Elizabeth Barry
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There is a wide range of loan options available to those who are in need of money. Each type of personal finance is suited to a different type of borrower and can be used for different purposes, and this includes personal loans and online cash loans.

In this guide, we break down the key differences between the two and outline their costs in order to help borrowers determine which will be the best loan for their needs and situation.

Are you struggling financially?


If you're struggling financially and would like to speak to someone for free financial advice, information and assistance you can call the Financial Counsellors hotline on 1800 007 007 (open from 9:30am to 4pm, Monday to Friday). If you are suffering financial problems related to the coronavirus pandemic you may be eligible for additional support.

⚠️ Warning about Borrowing

payday-warningDo you really need a loan today?*

It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.

Check your options before you borrow:

  • For information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor
  • Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan
  • If you are on government benefits, ask if you can receive an advance from Centrelink: Phone: 13 17 94

The Government's MoneySmart website shows you how small amount loans work and suggests other options that may help you.

* This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.

Payday loansPersonal loans
  • Can be a small loan (below $2,000), medium loan ($2,001-$5,000) or a large loan (over $5,000)
  • Usually unsecured
  • Come with higher interest rates and fees when compared to personal loans
  • Loan amounts differ, but you can usually find lenders offering between $5,000 and $100,000
  • Can be secured, unsecured or as a line of credit
  • Interest rates differ depending on whether security is offered, but they usually range between 5% and 16% p.a.

What's the difference between personal and payday loans?

There are several key differences between personal loans and short-term cash loans:

  • Loan amount. Customers can borrow up to $5,000 from many cash lenders, and some offer loans as high as $10,000. Personal loans come with much higher minimum and maximum loan amounts, with lenders rarely offering loans below $5,000 but having maximum amounts as high as $80,000-$100,000.
  • Eligibility. Personal loans offered by banks and credit unions have strict eligibility criteria that often includes good credit and a regular income from employment or above a certain amount. Cash lenders that offer short-term loans are much more flexible and will consider those with bad credit, those who receive Centrelink payments as income or people who are unemployed.
  • Lenders. Personal loans are offered by banks, credit unions, building societies and standalone lenders. Cash loans tend to be offered by lenders specialising in that type of product.
  • Loan term. Cash loans come with much shorter terms, usually between 16 days and one 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 and seven years.

What are the risks of payday loans?

  • Unaffordable repayments. Payday loans are an expensive way to borrow money and should only be used as a last resort. Check the size of each repayment and ensure you will be able to pay it on time. Unaffordable repayments can lead to late fees that will only make things worse.
  • High rates and fees. Rates and fees on payday loans are high but there are rules in place so be sure to check your lender is not charging you more than ASIC allows. Also, look at what you would be charged if you are late on a payment or if you default on the loan altogether.
  • Unreputable lenders. All Australian lenders should be accredited by ASIC. Check for a credit licence on the ASIC Register and ensure that the lender is easily contactable.
  • Impact on credit score. Every loan application shows up on credit reports. While lenders might not consider credit history, applying for lots of loans within a short period can have a negative impact on your credit score in the future.

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

Online cash loans are heavily regulated by ASIC and lenders are restricted as to what fees and rates they can charge. Personal loans do not have such restrictions as long as they are offered by an Authorised Deposit-taking Institution such as a bank or credit union.

Payday loan costs

  • Short term loans under $2,000 with terms of between 16 days and one year cannot charge more than a 20% establishment fee and a 4% monthly fee.
  • Cash loans between $2,001 and $5,000 with terms of between 16 days and two years are restricted to a $400 establishment fee and an interest rate of 48% p.a.
  • Payday loans over $5,000 or with terms longer than two years cannot exceed an interest rate of 48% p.a., which includes all fees and charges.

Personal loan costs

How can I decide which type is right for me?

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

How much do you need to borrow?

Personal loans allow you to apply for a much larger loan amount, while cash lenders usually have maximum amounts of $2,000 (although some lenders will provide loans of up to $10,000).

When do you need the money?

Cash lenders offer a quick turnaround for your loan and can have your approved funds in your bank account within the next business day. Some personal loan lenders offer same-day turnaround for existing customers but the usual waiting time is a few days to a few weeks.

How is your credit history?

Online cash lenders have more flexible eligibility criteria than lenders offering standard personal loans. You may still be able to apply for a cash loan if you have bad credit or a low income. Personal loans come with more stringent eligibility criteria. The majority of personal loan lenders will require you to have good credit and will usually have a minimum income requirement to show you can repay the loan.

What can you afford to repay?

Short-term cash loans come with much higher rates and fees, meaning higher repayments. Your loan will be repaid in a shorter period of time but you need to determine your ability to afford the repayments. Personal loans come with lower rates and fees, and while they are spread over a longer term, they may make for more manageable repayments.

Compare payday loans and personal loans

1 - 6 of 6
Updated regularly
Name Product Maximum loan amount Term of Loan Turnaround time Arrears Fee Costs Fortnightly Repayment (for $1500 Loan)
Sunshine Short Term Loans
Sunshine Short Term Loans
$2,000
9-14 weeks
30 minutes - conditions apply
$35
20% of loan amount + 4% of loan amount each month
$396
A small loan up to $2,000 that you repay over 9-14 weeks. Loans approved and funded in as little as 30 minutes. Centrelink must not be your primary income
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Jacaranda Finance Personal Loan
Jacaranda Finance Personal Loan
$15,000
9 to 24 months
Under 1 hour - conditions apply
$35
$0 - $1,000 depending on credit
Borrow up to $15,000 and get access to your funds in as little as 1 hour.
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More Info
Nimble Small Loan
Nimble Small Loan
$2,000
62 days to 9 months
1 hour - conditions apply
$15
20% of loan amount + 4% of loan amount each month
$396
A loan up to $2,000 with terms up to 62 days to 9 months. Centrelink cannot be your primary source of income.
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More Info
Fair Go Finance Small Loan
Fair Go Finance Small Loan
$2,000
1 to 12 months
24 to 48 hours
$35
Establishment Fee of $18 – $400
$354
A small loan between $300 and $2,000 that can be funded in 24 hours.
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More Info
Credit24 Short Term Loan
Credit24 Short Term Loan
$2,000
4-12 months
Same day - conditions apply
$10
20% of loan amount establishment fee + 4% of loan amount monthly.
$396
Credit24 offers this loan up to $2,000 and gives you 12 months to repay. Centrelink borrowers are considered as long as Centrelink payments are not more than 50% of income.
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Credit24 Medium Term Loan (Good Credit)
Credit24 Medium Term Loan (Good Credit)
$5,000
12 to 24 months
Same day
$10
$400 establishment fee + 48% p.a. interest
A small loan with long terms: Apply for up to $5,000 and have up to 2 years to repay.
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More Info
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Compare up to 4 providers

1 - 7 of 7
Updated regularly
$
Name Product Mobile details underline Interest Rate (p.a.) Comp. Rate (p.a.) Rate Type Application Fee Monthly Fee Monthly Repayment
NOW Finance No Fee Unsecured Personal Loan Fixed, 18 Months - 7 Years, $5,000 - $50,000
Exclusive
NOW Finance No Fee Unsecured Personal Loan
18 Months - 7 Years, $5,000 - $50,000
5.95%
to 19.95%
5.95%
to 19.95%
Fixed
$0
$0
You'll receive a fixed rate between 5.95% p.a. and 19.95% p.a. based on your risk profile
Borrow from $5,000 to $7,999 with loan terms between 18 months and 3 years or borrow $8,000 to $50,000 with loan terms between 18 months and 7 years.

⭐ Finder Exclusive: Apply and settle an unsecured personal loan of $30,000 or more to receive a $400 Westfield gift card. Ends on June 30 2022.
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OurMoneyMarket Personal Loan Fixed, 1 - 7 Years, $2,001 - $75,000
Exclusive
OurMoneyMarket Personal Loan
1 - 7 Years, $2,001 - $75,000
5.25%
to 20.99%
5.87%
to 23.83%
Fixed
1.50% - 6%
min. $250
$0
You'll receive a fixed rate from 5.25% p.a. to 20.99% p.a. based on your risk profile.
A personalised loan from $2,001 to $75,000 that varies based on your credit history and financial situation.

⭐ Finder Exclusive: Apply before 30th of June 2022 to secure a 0.20% p.a. discount for the full term of your loan.
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Harmoney Unsecured Personal Loan Fixed, 3 - 7 Years, $2,000 - $70,000
Harmoney Unsecured Personal Loan
3 - 7 Years, $2,000 - $70,000
5.35%
to 19.09%
6.14%
to 19.99%
Fixed
$275 - $575
$0
You'll receive a fixed rate between 5.35% p.a. and 19.09% p.a. based on your risk profile.
Apply for a loan up to $70,000 and repay your loan over 3, 5 or 7 years terms.
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More Info
Citi Personal Loan Plus Variable, 3 - 5 Years, $5,000 - $75,000
Citi Personal Loan Plus
3 - 5 Years, $5,000 - $75,000
8.90%
9.18%
Variable
$199
$0
You'll receive a variable rate of 8.90% p.a. with a comparison rate of 9.18% p.a. if you're approved.
A credit limit up to $75,000 that you can continue to draw down over terms up to 5 years.

⭐ Special offer: Monthly account service fee will be waived for applications submitted before 28 December 2022.
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More Info
Latitude Personal Loan Fixed or Variable, 2 - 7 Years, $5,000 - $70,000
Latitude Personal Loan
2 - 7 Years, $5,000 - $70,000
5.75%
to 25.99%
6.68%
to 29.20%
Fixed or Variable
0% - 5%
$13
You'll receive a fixed or variable rate between 5.75% p.a. and 25.99% p.a. based on your risk profile
Apply for what you need from $5,000 and use it for a range of purposes. Repay weekly, fortnightly or monthly. You can check your interest rate before applying with no impact to your credit score.
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More Info
Plenti Personal Loan Fixed, 3 - 7 Years, $5,000 - $50,000
Plenti Personal Loan
3 - 7 Years, $5,000 - $50,000
6.39%
to 21.99%
6.39%
to 22.79%
Fixed
$0 - $649
$0
You'll receive a fixed rate between 6.39% p.a. and 21.99% p.a. based on your risk profile.
A flexible loan with amounts from $5,000 and terms starting from 3 years. Interest and comparison rates calculated for a loan term of 5 years.
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More Info
Plenti Variable Rate Personal Loan Variable, 1 - 3 Years, $5,000 - $50,000
Plenti Variable Rate Personal Loan
1 - 3 Years, $5,000 - $50,000
6.39%
to 21.99%
6.39%
to 22.79%
Variable
$0 - $649
$0
You'll receive a variable rate from 6.39% p.a and 21.99% p.a. based on your risk profile
A flexible loan with amounts from $5,000 and terms starting from 12 months. Benefit from transparent costs and a rate estimate before you apply.
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More Info
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Compare up to 4 providers

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