When Payday Loans are Cheaper than Personal Loans?

EPF June 22, 2020

People who visit our site regularly, know that we are not big fans of payday loans. In fact we recommend them only at end case. This means that you should try all other options before getting a payday loan.

Payday loan APR average at 400%. Personal loan APR is limited to 35.99%, but in many cases it can be very low, if your credit score is good.

From these numbers, it’s obvious that payday loans are much more expensive.

But there are cases when you can save some money if you visit a payday lender.

How is that possible?

That is because APR doesn’t means exactly money. You pay interest only over the remaining amount of the principle.

How APR Affect the Total Amount Paid?


We will give you an example with an amount of $1,000.

If it is a payday loan with an interest fee of 400%, and you give it back in full in a month, this would mean that you would pay $1,300. So you actually pay $300 in fees. $300 for a month is a very bad deal.

If it is a personal loan with an interest fee of 35.99%, and you pay it in a year, you would totally pay $1,200, which means you pay totally $200 in fees. High amount but you have time to pay it!

If it is a personal loan with an interest fee of 35.99%, and you pay it in a 3 years, you would totally pay $1,650, which means you pay totally $650 in fees. Very high total amount, but you have very low monthly payments.

See the table below:

Amount:APR:Terms:Total Paid:
$1,000400%1 Month$1,300
$1,00035.99%1 Year$1,200
$1,00035.99%3 Year$1,650

As you can see, APR is not the only factor that shows how much interest fees you pay. The total interest is calculated based on the APR and the time that you have the money.

Here is how we prove that in some cases payday loans can be cheaper than personal loans, only because of the fact that you pay them faster.

How Amortization Works?

Different institutions have different amortization plans. Here we will focus on one unique factor that many people skip.

We will explain how the interests are calculated within the repayment period.


An amount of $1,000. Interest rate $35.99%, one year terms.

This would means about $100 monthly.

But these $100 are Amount + Interest. Say it $90 amount and $10 interest.

So from the moment that you pay these $100, the institution get these $10 like their profit and divide the rest of your total amount.

Your amount now is:

$1,000 – $90 = $910

Next month you again pay $100, but this time the APR is calculated only over the actual total amount which now is $910.

How Predatory Lenders Manipulate These Values to Scam You?

Predatory lenders use many ways to scam people. Here we will focus on one unique way that many people don’t know.

In the repayment plan they set the parameters in a way that at the beginning you pay only the main amount and close to 0 in fees. This means, the main loan amount remain big for a relatively long period of time and you pay fees over it.

And that way the loan remain much more expensive for you.


An amount of $1,000.

Few months you pay $100, but these $100 don’t lower significantly the total remaining amount. Lenders make it big like $990 even in few months. This would means that your APR multiply this high amount. That way the total paid would be high, even if the main parameters looks same.

Can Actually Payday Loans Be Cheaper than Personal Loans?

Like we already have proven yes. But how this actually could happen?


Payday loans are expensive, but the main idea behind them is to pay them back fast. For many people this typically didn’t happen. But if you pay the full amount fast, then you can pay less.

It’s about your personal stimulation…

Payday loan seems to stimulate you to pay them on time. If you know how expensive they would be, if you didn’t pay them on time, you stimulate yourself and pay them faster.

And for many people who count how much they lose everyday, this works!

Personal loans are set in a way to lower your monthly payments. Many people that have great income and pay relatively low monthly, typically stop thinking on this problem. They know that every month have to go and pay only $100 and they don’t care about too much.

But this increase their total amount.

If these people would be smart to stimulate them self and pay the loan on time, they would save a lot of money.

But banks have no interest to teach you about that …

Banks are ok with that.

You are reliable payer, you work for them and pay their small fees.

From this, they make a lot of money.

How to Invest in a Loan?

If the principle amount is big and you can’t pay it in full fast, there is an option to “invest” in it.

For example, you get $30,000. You pay $300 per month. There is an option to pay big amount that will change the parameters. Say that you decide to pay $10,000. This deducts the total amount, so although the APR remain same, you pay less because it is counted over the rest of the amount of the amount. And you change your monthly.

Does it Means That if I Plan to Pay the Loan Fast I Should Get Payday Loan?


Always try to get personal loans. In the scenario here we only wanted to show one specific cases that not many people discuss.

Back on the table:

Amount:APR:TermsTotal Paid:
$1,000400%1 Month$1,300
$1,00035.99%1 Year$1,200
$1,00035.99%3 Year$1,650
$1,00035.99%1 Month$1,030
$1,000100%1 Month$1,100

Now we added few new rows.

  • $1,000 amount with 35,99% for a month. Quick personal loan.
  • $1,000 amount with 100% for a month. Alternative payday loan.

As you can see if you plan to give back your personal loan in a month you would pay only $30 over this amount.

What about alternative payday loans?

As you can see with them, you would pay $100 totally.


Loans are not bad thing, but be careful. It’s type of risk and also you waste money. In some cases people solve their financial situation, but there are many cases when a good saving plan would save you from lenders and losing money. Even if you get the cheapest loan, you always lose money.

The decision is your.


Time is money! It loan business this rule count exactly.

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