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Find out how each of these loans works and which personal finance option is best for you right here with Savvy.
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When it comes to flexible sources of financing, there are few options as effective and popular as personal loans and payday loans in Australia. Both are essentially able to be used for whatever you like and can be applied for and approved quickly from the comfort of your home.
It’s important to understand the differences between these two types of loans before you apply, though, as you’ll find that they’re more different than you might think. Compare the two right here with Savvy to find out which one best suits your needs today.
Personal loans are a type of finance that allows you to borrow any amount from $2,000 up to $100,000 over a term of between one and seven years. You can select whether to pay these on a monthly, fortnightly or weekly basis depending on which suits you as a borrower.
As well as choosing your loan amount and term, borrowers are also able to decide whether to take out a loan with or without security. Unsecured loans sidestep the requirement for security and are more widely available as a result, with more borrowers eligible overall. Those who can supply an eligible asset may use a car, boat, caravan or another vehicle as collateral for their loan, increasing their borrowing range and reducing their interest rate.
You can also compare different types of interest rates. Fixed interest is offered by almost all lenders, which locks your rate in at the beginning of your loan and keeps it in place throughout your agreement. This facilitates more accurate budgeting and carries a degree of financial certainty as to how much you’ll pay each month. Variable rates are open to fluctuation, and while they can allow you to save when rates fall, they’re typically offered at higher base rates.
Payday loans are a different type of financing that offers small loans from $300 to $5,000 and repayment terms as short as 16 days up to two years.
Perhaps the most notable aspect of payday loans is that they’re faster and easier to obtain than personal loans. First and foremost, lenders offering these products aren’t as concerned with the credit score of borrowers, with their primary focus being their ability to repay their loan in the here and now. This makes them an appealing option for those who’ve struggled with credit in the past and don’t meet the eligibility criteria for standard personal loans.
Like many personal loans, though, there aren’t any costs associated with paying out a payday loan early. This flexibility allows you to cut down on the potential cost of your loan by paying above the minimum when you’re able to do so. This serves as an incentive for borrowers to pay off their loans quickly and remain comfortably on top of their repayments.
There’s a variety of different costs that you may encounter on your loan, whether that be personal or payday. It’s crucial to be aware of the price breakdown for each loan type, which is as follows:
Personal loans
The primary cost factor on personal loans is interest. This is a rate which is calculated based on your remaining loan sum each day, which is then added up and charged on top of your principal repayment for every instalment. This means that the more you pay, the less interest you’ll be charged. In addition to interest, there are several fees which can be charged to your loan (although some lenders won’t charge one or more of these), which are:
Payday loans
The costs associated with payday loans are more simple than personal loans due to the fact that they don’t come with any interest. Where these loans make their money is through two primary fees: the establishment fee and monthly fees. Establishment fees are capped at 20% of your loan amount up to $2,000 and $400 for loans above that sum, while monthly fees are charged up to 4% of your loan up to a maximum of 48% per year above $2,000.
While personal loans are based on interest and fees, payday loans only charge capped fees. However, the proportional cost of these fees is greater on a payday loan, with establishment and ongoing costs charged as a substantial percentage of your loan amount.
Unsecured personal loans can grant you a borrowing range up to as much as $75,000, which far exceeds payday loans ($5,000), but the minimum of $2,000 is higher than the $300 you can potentially borrow from a payday lender. You can also take between one and seven years on a personal loan compared to 16 days to two years.
You don’t have the option to supply an asset to secure your payday loan, which you can do with a personal loan. This serves as collateral, meaning your lender will be able to sell it to recoup funds in the event you’re unable to repay your loan in full.
Personal loans can be approved within 60 seconds and have funds sent to you within 24 hours, making them fast and simple. They don’t have a patch on small loans, though, which can be approved and sent through to you in the space of just one hour.
A good credit score and stable employment is a prerequisite for taking out a standard personal loan, but not for payday loans. These lenders will want to guarantee that you can support your repayments comfortably, after which you can be approved for your loan.
Personal loans are offered by all different types of lenders, from banks to credit unions to private online lenders. Cash loans, on the other hand, are only available from lenders operating exclusively in the online space, giving you fewer options to choose from and effectively none if you’re looking to arrange your loan in person.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
