When Payday Loans are Cheaper than Personal Loans?

Last Update: September 6, 2021 Loans

People who visit our site regularly know that we are not big fans of payday loans. In fact, we recommend them only in the 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 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 mean exactly money. You pay interest only over the remaining amount of the principle.

How Does APR Affects 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 rate of 35.99%, set to be repaid in a year, you would totally pay $1,200, which means you pay a total of $200 in fees. High amount but you have time to pay it!

If it is a personal loan with an interest rate of 35.99%, set to be repaid in 3 years, you would totally pay $1,650, which means you pay a total of $650 in fees. The very high total amount, but you have deficient 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 you pay them faster.

How does Amortization work?

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 mean about $100 monthly.

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

So from the moment you pay $100, the lender gets $10 like their profit and deducts 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.

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

And that way, the loan remains much more expensive for you.


An amount of $1,000.

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

Can Payday Loans Actually Be Cheaper than Personal Loans?

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

A payday loan seems to stimulate you to pay them on time. If you know how expensive they would be, you stimulate yourself and pay them faster.

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

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

But this increases their total amount.

If these people were smart to stimulate themself 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 a reliable payer, you work for them, and you pay their small fees.

From this, they make a lot of money.

How to Invest in a Loan?

If the principal amount is big and you can’t pay it in a 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 a large amount that will change the parameters. Say that you decide to pay $10,000. This deducts the total amount, so although the APR remains the same, you pay less because it is counted over the rest of the amount. And you change your monthly.

Does it Mean That if I Plan to Pay My Loan Fast, I Should Get a Payday Loan?


Always try to get a personal loan.

In this scenario, we only wanted to show one specific case that not many people discuss.

Back on the table:

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
$1,00035.99%1 Month$1,030
$1,000100%1 Month$1,100

Now we added a 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 things, but be careful. It’s a type of risk, and also you waste money on interests. 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 yours.


Time is money! In the loan business, this rule counts exactly.



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