What’s The Difference Between Payday Loans vs. Normal Loans

Money is borrowed in several ways; you can contact family or friends, credit cards, lending companies, or take loans from banks. Loans may appear as though they all similar.

However, never be fooled by payday loans as they are distinct from standard loans. When you're in a tight situation with your finances, both can be decent alternatives. 

But each aspect, including the repayment process, can be determined by how you choose what kind of loan you should obtain. Borrowers can have drastically different situations, paying off depending on the rate of interest and loan duration. How to differentiate between two prominent debt products, payday loans, and conventional loans? Here's precisely what you need to learn:

Normal Loans Vs. Payday Loans

Standard loans are typically intended to be settled through timetables, regularly occurring, occasional installments over such a long period. Such payments exist on a monthly or weekly basis. The arrangement of installments is a common one. 

Several forms of normal loans include: 

Alternatively, a conventional payday loan is offered to be quickly settled, usually after two weeks or upon receiving your next paycheck. Borrowers typically submit a post-dated check to the lender when they make the loan so they can redeem it on payday. 

Both normal and payday loans can help you need an additional boost with your fund, but this is where the resemblances end. The amount of loan, repayment period and cost, are among other variables that vary widely from one option to another. 

Loan Amount

You could be able to collect far more than $100,000 for a normal loan. However, most providers offer only about $50,000 to borrowers with low credit scores. With payday loans, loan amounts typically range from $50- $1,000. Other payday loan providers such as My Canada Payday lend up to $ 5,000 in loans regardless of your credit score. 


Generally, normal loans are cheaper, with rates of interest that average to about 36 percent, but in return, you'll need excellent credit scores. Payday programs are usually much more costly in terms of interest rates, but there are no strict credit standards. 

Loan Term 

Normal loans do have a more extended period of repayment or loan term. Providers offer various loan terms ranging from a minimum of 12 months up to seven or ten years. Contrary, payday loans have shorter-term periods of two to four weeks. This payment approach makes it an excellent option if you don't want to be stressed out with the burdens of recurring monthly payments.


Normal loans provided by local banks or credit unions need strict eligibility requirements, frequently demanding excellent credit history and a sufficient capital background from the applicants. Smaller businesses are asked to undergo the application process, which requires credit analysis, account information and verification, and business analysis. 

Sometimes in cases where creditworthiness would be more challenging to evaluate, lending companies often insist on borrowers completing the financial education courses. A payday loan is more versatile, and typically, lenders allow borrowers to have a stable income to be eligible. 

Moreover, payday loans are intended for borrowers with bad loans or low credit scores. All a payday loan company needs are draft access to your checking account and revenue verification. 


The local banks, credit organizations, and online loan providers are organizations that generally offer normal loans. In contrast, payday loans are provided by financial institutions specializing in short-term financing as well as check-cashing operations. 

Normal Loan VS Payday Loan: Which Is Better For You?

Deciding between a normal loan and a payday loan will probably depend on how much you need to take out a loan and several other factors. Ask yourself the following questions to help you choose the wisest option. 

How Much Do You Need? 

Deciding which type of loan to avail of depends on your needs. If you intend to borrow around $50 to $1,000, a payday loan could be healthier since most conventional loans prefer loan amounts between $1,000 to $2,000 at minimum levels. 

How Urgently Do You Need The Money? 

Payday loans frequently have quicker turnaround periods than normal loans because the processing's clearance is less. Many normal loan providers nowadays go online; thus, processing takes a longer time. 

How Is Your Credit History?

If you have a healthy and excellent credit score, you could hold and save money by having a standard low-interest loan instead of a payday loan. However, if it is the other way around, a payday loan would always have your back. 

Can You Afford The Cost Of The Loan? 

Inevitably the cost of each loan option relies on your capacity to pay. Make sure to assess your choices and use online calculators, usually provided by lenders, and see which ones are most reasonable for you. 

Ask yourself what your loan is going to be used for

The very first thing you should think about is what you’re going to be using your loan for. Most people take out loans for leisure-related purposes, and for the most part, it’s generally a bad idea to do this. This is because taking out a loan for luxury purposes or entertainment can lead you to develop a lifestyle outside of your means. We shouldn’t be spending money that we can’t afford, so try to avoid this if possible.

However, a couple of situations where the use of a loan can be helpful and completely justified. For example, a debt consolidation loan can help you reduce the interest you’re paying on other debts and loans. If you’re struggling with your payments, we highly recommend that you consider a debt consolidation loan to pay off your existing debts and shrink them down into a single repayment plan to a single entity. This will greatly reduce the amount of interest you pay and take a lot of stress off your shoulders. However, you will need to be approved for a debt consolidation loan, so make sure you speak with experts to ensure you’re making the right decision.

Another good reason is to use them for emergency expenses such as medical bills or repair costs. For example, if your home was damaged in a storm and your insurance didn’t cover something, then you may want to consider taking out a loan to repair your home if needed. Similarly, a loan can be used to pay for medical bills if you currently can’t afford the cost of treatment. Quality healthcare is important, and it’s important to remember that not all medical-related expenses are free. While much of it will be covered by your insurance, there will be times where you need to spend a lot of your own money to get the best treatment.

In short, try to avoid taking out a loan for entertainment and luxury purposes. Instead, try to reserve taking out a loan for emergencies where you really need the money.

Do you actually meet the requirements to take out a loan?

The second thing you should consider is if you even meet the requirements to take out a loan. Depending on the type of loan, you’ll need to meet a certain level of criteria. For example, an unsecured loan typically requires you to have a good credit rating. This will show banks that you’re trustworthy with money. This will not only enable you to take out an unsecured personal loan but also means you can loan more money if needed with lower interest rates.

Before you decide to take out a loan, check to see any financial products you can take advantage of. For example, some loans are designed specifically for businesses or properties and secured against the property itself. This means if you can’t pay it back, your business or investment will be liquidated or given to the lender.

Loans that are secured against the property are typically known as hard money loans. It’s important to understand the pros and cons of hard money loans so that you know if it’s the right product for you. Similarly, it would help if you also tried to understand the pros and cons of other financial products like unsecured loans, homeowner loans, and so on. Different banks offer different kinds of products, so it’s best to look at your options before committing.

Have you looked at the fees associated with your loan yet?

Many people don’t realize that there are often lots of fees associated with personal loans. Every loan has varying fees that you need to pay as part of the process. For example, you might need to pay an initial fee to establish the loan, you might need to pay servicing fees, and there are often early exit fees. Some loans might even have fees for early repayments because the lender expects you to pay a certain amount of interest to make money from you. As you can see, it isn’t easy to figure out exactly how much money you need to pay back a loan.

Make sure you look at the fees for your loan before you sign up. If you planned to pay back your loan early but encounter early repayment fees, then it could completely ruin your plans for the loan. Ensure you get a good understanding of all of the costs involved to feel more confident coping with the ensuing debt.

Make sure you can actually pay it off.

Lastly, don’t forget to consider how you’re actually going to pay off the debt. It’s important to consider how much you’ll be taking out of your salary or other sources of income. Ensure that you’re actually able to pay off the loan through regular means before deciding to take on an expensive loan.

Once you consider all of these points, you’ll be more confident about taking on a loan, or you might even reconsider your options. After all, a loan should be a last resort and not the first option you consider for financing something.

Final Thoughts 

While it's evident that the best option is a payday loan, borrowers can do their research whenever they sign in for a loan. Just like your ordinary shopping, you won't be buying something without comparing prices and features. 

Loans are and should be viewed as products. Before you comply with any agreement, enlighten yourselves with the different loans available on the market. In doing so, consider the points mentioned above and start looking at the ones that fulfill your need. 

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Michael launched Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.