Payday Loans vs. Short Term Loans

Unexpected events happen regularly and many times, people are forced to look for cash to save the situation. Some circumstances that require quick cash include sudden funerals, home and motor vehicle repairs. Over the years, money lenders have diversified their products to cater to the insatiable demand for quick loans.

Payday loans and short term loans are popular solutions to financial emergencies. Both products are popular due to fast processing times, suited for emergency purposes. As you shop for the perfect loan, it is imperative to differentiate both types of loans and make an informed decision.

Payday loans

Just like the name suggests, this loan service extends credit to borrowers to be repaid in one lump sum repayment from the next salary or payday. They have a very short repayment period, usually one month and attract very high-interest rates.

These loans are popular among people with poor credit ratings. They are not strict on poor credit scores but rather focus on identification documents, proof of a monthly salary and a bank account. Additionally, these loans are almost instant, taking just a few hours to be availed to the borrower.

Short Term Loans

Like payday loans,  short term loans are sought by people looking to take care of emergencies and are paid over a short period, usually anywhere between one month and a year. Due to the short repayment period, they attract high-interest rates compared to regular loans.

Short term loans may be advanced with little or no collateral and like payday loans, they only require a valid proof of employment, identification documents and a bank account. They are popular for their simple application process and fast disbursement of cash.

Differences between Payday Loans and Short Term Loans

While these two types of loans are strikingly similar, it is important to differentiate between the two, to pick an option best suited to your financial situation. Get your facts right as a default in payment can damage your credit score and trap you in a vicious cycle of borrowing to mitigate the high-interest rates, penalties and fines.

  1. Duration of Payment Period

The major difference between both types of loans is the duration time provided for payment. While payday loans are repaid in one month, short term loans are more flexible with payment plans ranging from a few weeks to a year.

  1. Interest Rates

Both are high-interest-rate loans, but payday loans attract significantly higher interest rates that can leave the borrower in a financial rut if they are unable to pay back the money within the stipulated period. Short term loans have slightly friendlier interest rates due to a longer repayment window.

  1. Amount Availed to Borrowers

Payday loans are usually smaller amounts compared to short-term loans and are not favorable for borrowers looking for large sums of credit.

  1. Degree of Risk

Payday loans are high-risk loans compared to short-term loans due to short repayment periods coupled with high-interest rates. Longer repayment periods make planning for short term loans easier and reduce default rates.

While both types of online loans are convenient and give a lifeline out of desperate situations, make sure you can repay the loan to avoid financial problems.

If you are really in need of quick cash for personal expenses, make an online application with My Cash Online today.

*Disclaimer & Example: For our Small Loans of $2,000 or less, an APR (Annual Percentage Rate) doesn't apply. These loans are fee-based only with a term between 62 and 180 days, and so the APR is 0%. The establishment fee is 20% of the amount borrowed and the monthly fee is 4% of the amount borrowed. Representative example: a loan of $1,000 repaid over 3 months equates to a total amount payable of $1,320 comprised of $1,000 principal (amount borrowed), $200 establishment fee and $120 in monthly fees. The maximum comparison rate on loans between $300 and $2000 is 199.43%.
For our Medium Loans between $2,100 and $5,000, with a term between 2 months and 12 months, the maximum Annual Percentage Rate (APR) is 48% (Comparison rate 65.6597% p.a.) and there is a $400 Establishment Fee. A Medium Loan of $3,000 borrowed over 1 year would equate to a total amount payable of $4,289 (including a $400 establishment fee).

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR %). The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

© 2023 Owned by Australian Synergy Finance Pty Ltd, ABN 54 613 655 646. Australian Credit Licence 490422. The information on this webpage is general information only and does not take into account your objectives, financial situation or needs.