Group of business owners having happy discussion at a cafe Group of business owners having happy discussion at a cafe
Group of business owners having happy discussion at a cafe

Whether you’re dealing with unexpected bills or other financial emergencies, there are many times when a little extra money can be helpful to cover urgent expenses. If you’re comparing personal finance options, two of the most common are personal loans and payday loans.

Both types of loans involve borrowing an agreed sum of money that must be repaid (with additional fees) over a certain period, but there are also important differences. Read this short guide to personal loans vs payday loans to find out how they compare and speak to a financial adviser to help you make an informed decision.

What is a personal loan?

Personal loans are offered by banks, credit unions, building societies and online loan providers. They are usually for a larger sum of money than payday loans (typically between $10,000 and $80,000 or more, depending on the lender) and are repaid over a longer period of time with interest.

Personal loans may be secured or unsecured. A secured personal loan uses an asset as security (such as a house or car). An unsecured personal loan is not backed by an asset, but can sometimes attract a higher interest rate. Fox Finance Group are accredited with a multitude of personal loan lenders on their panel to ensure a tailored finance solution for every customer. As a client of Fox Finance Group, you will receive a designated Lending Specialist to compare and contrast all options available to you.

What is a payday loan?

A payday loan is a smaller loan with a much shorter repayment period, typically from 1 month to 1 year. Payday lenders often charge high interest on the loan, as well as charging an establishment fee and monthly service fees as a percentage of the amount borrowed.

These loans have lower requirements than personal loans, but they involve higher fees and penalties if the loan is not repaid in full on time. As such, payday lenders in Australia have faced criticism for preying on the vulnerable and allowing borrowers to become trapped in a vicious cycle of debt.

How much can I borrow

Differences between payday loans vs personal loans

Personal loans and payday loans are both means of borrowing some extra funds when you need to, but the two loan options have many differences to keep in mind.

Loan term

As their name suggests, payday loans must be repaid within a shorter time frame than personal loans.

The repayment period for a personal loan can be anywhere from 1 to 7 years. Payday loans are often paid over a shorter amount of time.

Loan amount

Payday loans are designed for smaller purchases or emergency expenses, while personal loans are generally for larger amounts.

Most payday loans are capped at $2,000, though some lenders may offer more. With a personal loan, you may be able to borrow as much as $80,000, depending on the lender and your circumstances.

Interest rates and fees

Personal loans have comparatively cheaper borrowing costs than payday loans, though these will be charged over a longer period of time in the form of interest, which may be at a fixed or variable rate.

Payday loans are well-known for charging incredibly high interest rates. There will also be more expensive fees if you miss a payment or default on a payday loan.


Personal loans are offered by many reputable lenders, including major banks, building societies, credit unions and online lenders, giving borrowers more options to compare.

Payday loans are only available from specialist payday lenders and some stores that offer financial services.


As personal loans involve a higher amount, lenders have stricter eligibility criteria to make sure borrowers will be able to afford their repayments. They will ask to see proof of employment and income and will check your credit score to determine your eligibility for a loan.

Payday loans have fewer requirements, with lenders only requiring that you are an Australian citizen or permanent resident, over 18 and can provide proof of income.

Loan restrictions

When you apply for a personal loan, you may need to specify the purpose of the loan, especially for a loan that requires an asset for security. Unsecured personal loans have fewer restrictions, but lenders may still decide not to approve a loan if its purpose is not considered essential. You’ll be able to discuss the purpose of your personal loan enquiry with your designated Lending Specialist at Fox Finance Group, and work with them to ensure your application is as strong as possible.

Payday loans have no restrictions, and it’s up to the borrower to use their funds wisely.

Loan application

Both loan options involve completing an application and providing requested documents. Online personal loan applications can be more convenient, especially with guidance from a professional finance broker.

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Questions to ask yourself when choosing a loan

Personal loans and payday loans can each have their pros and cons, depending on your circumstances. Thinking about what you need from a loan and talking to a financial advisor should give you an idea of which type of loan is a better fit for you.

How much do I need to borrow?

If you only need to borrow a relatively small amount of money (from $50 to $2,000), and are confident you can pay it back quickly, a payday loan could be a suitable option.

If you need a larger sum, your lending specialists may recommend a personal loan or a specific loan, such as a travel loan or wedding loan.

How soon do I need the money?

An advantage of payday lenders is that they offer a faster turnaround, with funds sometimes being transferred on the same day or next business day.

A personal loan can involve more stringent checks and may take a few days or longer, but some loan providers offer same day approvals. Your designated Lending Specialist will be able to provide insights on lender turnaround times based on their assessment queues, and your profile eligibility at time of application.

What can I afford?

Whether you’re borrowing money for the short term or a longer term, you need to be sure you can make the repayments on time, or you could face costly fees.

Personal loans may cost more in interest in the long term, but your monthly repayments could be lower.

What is my credit score?

Your credit rating will affect your eligibility for a personal loan and the loan amount and repayments. If you have bad credit, you may still be eligible for a personal loan for a smaller amount.

Should I seek financial advice?

Before you apply for a loan and get into debt, it’s recommended to seek professional advice so you can make a fully informed decision.

Our financial experts at Fox Finance Group will explain all of your options and find and tailor the best loan for your needs from over 50 reputable lenders.

If you’re contemplating a personal loan, but not sure what options may be available to you; give our friendly team a call on 1300 665 906, or have us call you.

About the Author

Rowdie Lang

Rowdie has been a part of our Team since 2020. He has witnessed firsthand the ongoing evolution of the finance industry as technology continues to change the way customers' access financial services. He has a passion for helping people and relishes the opportunity to work alongside our teams every day as they help our customers financial dreams come true.

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