Short Term Personal Loan vs. Payday Loan: Which is Better?

No matter how well you juggle your finances, things do fall apart. If you are also facing a cash crunch because of an emergency, lending money is the most sensible way to manage the dire situation. But for many people, lending a small amount ends up in a debt trap. It is not because they did something wrong; it is just they chose the wrong lending option.

This is what today’s post is about. We will evaluate the two most popular instant lending options, i.e., short term loans in Canada and payday loans.


Payday Loans

Payday loans are the instant small-dollar loans usually of $500 or more that you have to repay in a single payment on your next payday. This type of loan offers you immediate financing within a few hours but charges a very high application processing fee and predatory interest rates in the range of 300% to 600%.

Rollovers in payday loans are very common, and there are many reports that suggest that the majority of the borrowers take out a second payday loan within a month of their first. It occurs because payday loans have very short-term repayment time and borrowers have to repay the entire amount in a single payment.  


Short Term Loans    

Short-term personal loans are the small-dollar installment loans usually of $500 to $50000 that are repaid in weekly or monthly installments. This type of loan is typically repaid within a year and charges you APR in the range of 24% to 32%.  

Many independent lenders offer this type of instant online loans in Canada that transfer the money to your account on the same day of applying. This type of loan offers you a longer repayment time. You can repay the loan in easy small monthly installments.


The Takeaway

Both options provide immediate financing to borrowers with bad credit scores, but considering the nature of both types, short term loans are clearly a far better option than payday loans.  

Location: Canada

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