Financial emergencies mostly come unannounced, necessitating the urgent need for funds. It is not always prudent to cough up your savings during such times. Loans have become a popular source of raising funds in today’s dynamic environment. Lenders in India are now offering different loan options at attractive terms to suit a borrower’s fund requirements.

Two such popular personal use loan products available are personal loans and payday loans.

What is a Payday Loan?

Payday loans are short-term unsecured loans, usually repayable within a month. These loans are helpful in meeting immediate expenses like paying your house rent, school fees, or repair charges, which cannot be held up till your next payday. Payday loans are mostly availed by salaried individuals, who get to repay the loan on their next payday. The loan amount normally constitutes a part or portion of the borrower’s next salary. These short-tenure loans are instantly approved; however, they entail a higher interest cost as compared to personal loan interest rates.

What is a Personal Loan?

A personal loan is also an unsecured collateral-free loan with no restrictions on the purpose of availing it. Most lenders offer personal loans with tenures ranging from a few months – 6 years, provided eligibility criteria are met, making it easy to avail these loans.

Differences between Personal Loans and Payday Loans

●       Loan Amount

A personal loan can be availed for a larger amount as compared to a payday loan, making it very easy to pay your EMIs over a flexible tenure. Payday loans normally do not exceed the borrower’s salary amount.

●      Loan Tenure

Personal loans are offered for a longer period, which could range from a few months to several years, making it a viable loan option. However, payday loans are offered only for a very short duration, mostly a few weeks until your next paycheck arrives.

●       Interest Rates

Payday loans are approved instantly like personal loans; however, these loans carry a higher interest rate as compared to personal loan interest rates. Payday loans are taken for availing of immediate cash needs. These loans have minimal documentation and eligibility process, so they entail a higher borrowing cost than other loans.

●       Eligibility Criteria

Personal loans require a borrower to have a good credit score, healthy debt-income ratio, and a stable income among their key eligibility criteria, apart from the mandatory submission of KYC documents. On the other hand, payday loans have no such requirement, except for the fact that a payday loan borrower should have a regular source of income to repay the amount borrowed.

Which is better: Payday or Personal Loan?

If the loan is required to meet any temporary cash requirement, which you can easily repay within a short span, then a payday loan is the right choice. However, any long-term loan requirement favours going in for a personal loan as it gives flexible repayment options at better personal loan interest rates. A personal loan EMI calculator can also help in selecting your choice of loan to be availed based on your loan specifications.

To choose between a personal loan or a payday loan, one should consider the reason for availing of such a loan in the first place and evaluate their various features before making the final choice.


Payday loans and personal loans are both unsecured loans. However, they have different features. Once the type of loan to be availed has been decided, one should approach a trusted lender which offers customized personal loan products at competitive interest rates.

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