Unsecured Personal Loans vs. Payday Loans: a few facts you need to know

Unsecured Personal Loans

Credit Reporting

Unsecured personal loans are reported to the credit bureaus when they’re obtained.  If the borrower makes timely payments, the loan will positively contribute to the borrower’s overall credit history.

It’s important to consider how your financial decisions will affect your credit score and history.  A low credit score can be very expensive or disqualifying when applying for an auto loan or home mortgage.


The APR (annual percentage rate) for an unsecured personal loan will vary depending on the borrower’s credit score, employment history, loan amount, and the lender’s programs – introductory 0% interest loans are available for those who qualify.  Longer, five and seven year loans offer borrowers terms with lower monthly payments.

You won’t know what program you will qualify for until a lender pulls your credit and reviews what should be a no-cost application.

Payday Loans

Credit Reporting

Payday loans are very short-term loans that are not reported to the credit bureaus.  You won’t be able to establish a positive credit history or repair damaged credit by utilizing payday loans to meet your short-term financial needs.


The finance charges vary from payday loan company to payday loan company, but the average annual percentage rate can be between 360% and 400%.  Typically, a borrower writes the loan company a personal check for the amount they want to borrower, plus the finance charges, which range from $15 to $30 for every $100 borrowed.

A two-week $1000 payday loan with a $150 finance charge would have an APR of more than 390%, based on a two-week term.  *APR will vary depending on the borrower’s perspective and method of calculation.

Most payday loans require the borrower to repay the entire loan amount, plus the finance charges on their next payday.