Bad Credit Loans vs Short Term Loans vs Payday Loans

EPF Last Update: September 29, 2020

Typically when people are with bad credit, they get payday loans, which are types of short term loans.

And they think that these things are the same.


  • Lack of knowledge on this topic.
  • Manipulating of the terminology. Yes! Predatory lenders have a huge interest to manipulate the terminology because they make a lot of money from people who don’t understand the things correctly.

We will explain these things carefully later in this article.

For now, you have to understand that these things are different. And understanding the difference between them will help you a lot. If we say that knowledge is power, this applies 10 times if we talk about bad credit loans.


Because many people who are with bad credit end up with payday loans. Payday loans are very expensive and predatory. The truth is that these days there are many loans available for people with bad credit.

The Difference Between Bad Credit Loans, Short Term Loans, and Payday Loans

The difference between these terms is obvious and it comes after you read them carefully.

  • Bad credit loans

Think of them as a broad term that group all loans that are available for people with bad credit. Some of them could be payday loans and short term loans, but not always! There are personal loans, that are capped at 35.99% APR available for people with bad credit.

  • Short term loans

Short term loans are these that come with relatively short repayment plans. It can be one time repayment, it can be a few month repayments, to year. In most of the cases, these are a small amount of loans. Payday loans are a type of short term loans, but not all short term loans are payday loans. There are personal short term loans. And not only people with bad credit get short term loans, which again differ them from bad credit loans. There are many people with good credit that get short term loans.

  • Payday loans

Payday loans are for people with bad credit and are a type of bad credit loan. But we can’t say that all bad credit loans and all short term loans are payday loans. Payday loans are expensive. They typically lead people to the debt cycle. According to CFPB, their APR average at 400%. This means that if you get $100, you will have to pay $130 in 2 weeks. CFPB has also found that the average time that people remain in the debt cycle is 200 days.

And here is the catch and the actual reason why write this article!

The catch …

Very obvious and serious catch!

Predatory lenders successfully manipulate the terminology and make people believe that payday loans, short term loans, and bad credit loans are the same things.

This catch makes million of Americans overpay billions for their loans.

How Predatory Lenders Succeed in Manipulating The Terminology?

To understand how predatory lenders manipulate people into getting their expensive loans, let’s mention a few things about their target customers.

  • Who is looking for payday loans?

Typically these are people who are:

  • With bad credit, or no credit history.
  • With a lack of knowledge on the bad credit loan market these days.
  • With a lack of hope.

And this list of features, create a great targeted audience that is obviously easy to be manipulated.

Predatory lenders try to mislead people with bad credit, that they have no other options than getting a payday loan.

And people get manipulated, successfully!

Because people with no hope, or because of lack of time and knowledge, are willing to get fast and in most cases wrong decisions. And this easily manipulated target typically goes and gets predatory loans. And this is a mistake!

  • How actually predatory lenders manipulate the terminology?

Bad credit loans, short term loans, payday loans, easy approval loans, no credit check loans, no credit no problem, no income verification loans, and so on.

Predatory lenders succeed in manipulating people that all of these terms are the same as payday loans.

And people believe in that and they get super expensive loans, in case there are better options.

That’s not true!

In fact, these days, the lending market is totally different and people with bad credit have so many options than payday loans.

The Truth About The Bad Credit Lending Market in 2020

The lending market for people with bad credit totally changes in 2020. A few years ago things were totally different.

Imagine that you are with bad credit. And your credit score is only a few points below the good credit range that is necessary to qualify for a personal loan. You apply with many banks, credit unions, online lenders and the answer is the same: disapproved. In this case, payday loans would be your only option.

So, the truth is that a few years ago these terms: bad credit loans, short term loans, payday loans were almost the same thing.


People who were with bad credit had only one option – payday loans, which are a type of short term loans. So these terms were more close.

But now, things change!

How and why?

  • It’s obvious that we can’t categorize people to only people with good and bad credit. People are different and their risk score should be treated differently. There is a huge gap between people with good and bad credit.
  • The competition in the lending market grows. The number of new lenders and loan products grows every day.
  • The huge gap between lenders who offer personal loans and payday loans. Personal loans are capped at 35.99% APR, payday loans APR average at 400%. This is a huge difference! But what about this difference? What if your credit score is only a few points under the good credit stand? And what if you are with a very low credit score? These are a different group of people, but the lending market treated them the same way. Now things change.
  • The increased interest in people who are with not so bad credit in better loans.
  • Now, lenders evaluate other factors, then your credit score. These are things like income, debt to income ratio, and more. Do you know what is the most important risk factor for many lenders now? Your credit score? No! It’s your debt to income ratio!

These are the main factors that have totally changed the lending market.

Now the lending market is changed and it continues to change and improve!

Risk based lending have applied!

What is Risk Based Lending?

Risk based lending means that lenders try to evaluate your creditworthiness, individually based on your risk profile.

It’s not like: you have bad credit you don’t qualify.

It’s like, you have a lower credit score, you get approved, but you pay more interest fees. A higher credit score you have, the less you pay.

And this is a significant difference!

Now, we are back on the example that we gave above.

Imagine that you are with bad credit. And your credit score is only a few points below the good credit range that is necessary to qualify for a personal loan. You apply with many banks, credit unions, online lenders and the answer is the same: disapproved. In this case, payday loans would be your only option.

What would happen now, after this change?

Like we’ve mentioned personal loans are capped at 35.99%, payday loans are about 400%. So now, a legitimate personal lender would increase your APR but you get approved! Typically people with bad credit pay about 15% to 35.99%, which is totally different from 400%.

Personal loans are up to $100,000 and can be set with a long repayment plan. Payday loans are typically up to $1,000 and have to be paid in the next month.

So your bad credit loans can become from short term payday loan to long term personal loan.

Other Reason Why Lenders Succeed to Manipulate People Successfully

Laws are different. Different states treat bad credit loans differently. Some states ban payday loans, other states regulate them, other states allow them. But still, the problem with a lawful definition is not resolved.

And this again works well for payday lenders.

The fact that the things are not definite by law carefully, create a great environment for additional manipulation.

When Should You Get Payday Loan and What Should You Do if You are with Bad Credit?

We at ElitePersonalFinance recommend that you avoid payday loans. We highly recommend that you try other options, like personal loans for bad credit, alternative payday loans, secured loans, and so on.

Again, the lending market is totally different and there are many more options.

Pro tip: Are you with so a low credit score? Why?

Do you know that according to CFPB, almost 30% of the credit reports contain errors? Do you know that if you go and report them, they will be instantly cleared and your credit score will be improved? In fact, this is the only legitimate way to boost your credit score fast.

If you are with bad credit, you should also educate yourself on that topic. Here we have the most advanced bad credit loan guide.

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