Personal loans, private loans, and payday loans, why are there so many names for what seems like the same financial product? The easiest answer to that question is that each of these loans is a unique product meant to provide consumers with the funding they want depending on what their needs are.
With so many different loan products on the market, it can be a confusing, stressful, and sometimes impossible process to choose which one best suits your financial needs. Understanding the differences and the pros and cons of these loans and how each one functions is the best way to weigh your options and make the most informed decision.
| Personal Loan | Private Loans | Payday Loan | |
| Loam Amount | Up to $50,00 | Varies greatly | Up to $1,500 |
| Interest Rate | 2% – 46% | 2% – 46% | Depends on province |
| Loan Term | Up to 60 months | Up to 60 months | Up to 3 months |
| Credit Check | Yes | Yes, but not always | No |
| Who Offers It | – Banks- Private Lenders – Online Lenders- Alternative Lenders- Credit unions | – Online Lenders- Alternative Lenders | Payday lender |
| Reports to Credit Bureau | Yes (always ask the lender first) | Yes (always ask the lender first) | No |
A personal loan is an installment based loan, wherein the lender provides you with a lump sum of cash that you have to repay in installments. Personal loans are typically offered by a bank, credit union or another traditional financial institution. Unlike a car loan or mortgage, a personal loan can be used for any purpose including consolidating high-interest credit card debt or covering an unexpected emergency.
Under the personal loan umbrella, consumers can typically choose between secured and unsecured loans. The main difference is that secured personal loans are backed by collateral such as a car or house.
Whether you’re applying for a personal loan with a bank or private lender, the steps to apply are fairly simple:
Lenders look at your credit score to determine whether or not to approve your loan application, as well as what interest rate to charge. It’s helpful for you to know what your credit score is, as it will give you an idea of your chances of getting approved for a personal loan. Plus, it will tell you what type of rate and terms you’ll be offered if approved.
Calculate exactly how much you need before applying. You don’t want to borrow too much, as that will just increase your debt more than necessary and leave you with bigger installment payments. Plus, you’ll be paying more interest on money you don’t need.
Loan prequalification means the lender will conduct a basic review of your creditworthiness to decide whether or not you can qualify for a loan. Many lenders let you get pre-qualified for a personal loan with a soft credit check, which won’t negatively impact your credit score. By getting pre-qualified, you’ll be able to compare loan offers before officially applying.
Once you’ve narrowed down your options, apply for a loan directly through your lender of choice. If you’re applying with an online lender, you can apply online via their website. You’ll need to make sure that the application is filled out in full and submit all required documents.
Shortly after, you should receive notification of approval, then the funds will be sent to you via direct deposit or e-transfer soon after that. Approval and funding usually take no more than 24 hours with online lenders.
Private loans can are generally provided by a private individual, private creditor, or small business (not big banks or large financial institutions). Like a bank, these private lenders also offer personal loans, except they are usually smaller in size and more expensive. While these private loans are more expensive, they have more flexible requirements compared to banks. As such, if you’re concerned about your low credit score or past financial issues then a private loan may be your best option. Private lenders are usually more willing to discuss your financial history and they rely less on credit scores to make their approval decisions.
If you’re in a financial pickle, a payday loan may be a potential option to consider. Payday loans are short-term loans with very lax lending criteria, making them very easy to get approved for. Moreover, payday loans don’t require credit checks, making them an easy option for bad credit borrowers.
Loan amounts are very low, usually for no more than $1,500. The loan terms are also extremely short. The loan must be fully repaid by the time you receive your next paycheque, which is typically within 2 weeks to a month.
But despite how simple payday loans are to get approved for and how quickly you can get funded, these types of short-term loans are extremely expensive. Payday lenders charge anywhere from $15 to $25 per $100 borrowed, on average, depending on where you live.
Payday loans have a few perks that make them very attractive to borrowers:
Along with the benefits of payday loans, there are a few downsides that you should consider before applying:
| Loan Amount | Interest Rate | Term | Province Availability | ||
 | Up to $15,000 | 29.99% - 46.96% | 9 - 60 months | BC, AB, SK, MB, ON, NB, NS, PEI, NL | Learn More |
 | Up to $20,000 | 19.99% - 46.8% | 12 - 60 months | BC, AB, ON, NB, NS, PEI, NL | Learn More |
 | Up to $15,000 | Started at 19.99% | Open-end | BC, AB, SK, ON, NS, PEI, NL | Learn More |
 | Up to $1,500 | Varies by province* | Max 62 days | BC, AB, MB, ON, NB, NS, PEI | Learn More |
 | $120 - $1,500 | Varies by province* | Max 62 days | BC, AB, SK, MB, ON, NS | Learn More |
 | $500 - $750 | Varies by province* | 90 to 120 days | BC, AB, ON, PEI | Learn More |
 | Up to $1,500 | Varies by province* | Up to 62 days | BC, AB, ON | Learn More |
 | $50 - $1,500 | Varies by province* | 14 days | BC, AB, SK, MB, ON, NS | Learn More |
 | $50 - $1,500 | Varies by province* | Up to 31 days | BC, ON, NS | Learn More |
 | $200 - $1,500 | Varies by province* | Next payday | BC, AB, SK, NS, YT, NT, NU | Learn More |
 | Up to $1,500 | Varies by province* | Next payday | BC, ON | Learn More |
 | Up to $1,500 | Varies by province* | Max 62 days | BC, AB, SK, MN, ON, NB, NS, NL, YT, NT, NU | Learn More |
As mentioned, it’s relatively easy to qualify for a payday loan. That said, there are still some criteria that typically must be met:
The costs of a personal loan, private loan and payday loan can vary greatly based on the interest, fees and terms offered.
| Personal Loan From A Bank | Private Personal Loan | |
| Loan Amount | $10,000 | $10,000 |
| Term | 3 years | 3 years |
| Interest Rate | 0.5% – 15% | 3% – 46% |
| Monthly Payment | $279.92 – $346.65 | $290.81 – $516.73 |
| Total Interest Paid | $77.27 – $2,479.52 | $469.24 – $8,602.19 |
| Province | Max cost per $100 borrowed | Max Penalty for Returned Cheque | Cooling Off Period | Loan Rollover or Extension |
| Ontario | $15 | n/a | 2 business days | Not allowed |
| British Columbia | $15 | $20 | 2 business days | Not allowed |
| Alberta | $15 | $25 | 2 business days | Not allowed |
| New Brunswick | $15 | $20 | 48 hours (not including Sundays and holidays) | Not allowed |
| Manitoba | $17 | $20 | 48 hours (not including Sundays and holidays) | Allowed |
| Saskatchewan | $17 | $25 | Next business day | Not allowed |
| Nova Scotia | $19 | $40 (default penalty) | Next business day (or 2 days for online payday lenders) | Not allowed |
| Newfoundland and Labrador | $21 | $20 | 2 business days | Allowed |
| Prince Edward Island | $25 | n/a | 2 business days | Allowed |
| Quebec | 35% AIR | n/a | 10 days | Not allowed |
Payday loans and personal loans can both affect your credit score in different ways.
Personal loans and private loans are without a doubt your best options. They’re easy to apply for, easy to pay off and won’t ruin your finances. With that being said, here are some important questions you should consider when choosing a lender to work with:
Choosing between a personal loan, a payday loan, and a private loan should be based on personal preference and your current financial situation. Keep in mind that payday loans are typically the worst choice. Taking on debt that you cannot afford can cause serious financial issues down the road, always look for a lender who has a good reputation, offers a solution that fits into your budget, and is easy to work with.
Rating of 4/5 based on 7 votes.
Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.
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