Payday Loan vs Personal Loan: Which One Should You Get?

Mar 26, 2021
Personal Loan
By Staff writer

Summary of the Payday and Personal loans article:

  • What is a personal loan
    • Unsecured Personal Loan
    • Secured Personal Loan 
  • Why get a personal loan?
  • Tips before applying for a personal loan
  • What is a payday loan
  • Why get a payday loan
  • Payday loan companies in NZ 

Are you short on cash and need to borrow right away? Or maybe need extra funds for renovating your home? You’re probably wondering whether you should use your credit card or simply take out a loan. 

A credit card is typically used for shopping and/or buying items that you instantly need. For every time you swipe your credit, you can earn points and get discounts plus other benefits in your next purchase. 

Learn how you can better manage your credit card here

Loans, on the other hand, don’t work that way. Most people think of taking out a loan when purchasing their first home, car, or paying up their debts, bills, and hospital expenses. For these situations, you can either go for a personal loan, or a payday loan. But what's the difference between the two?

What is a personal loan?

A personal loan is the amount of money you borrow from a lender, and then repaying the loan in equal repayments over a period of time, usually between 2 to 5 years depending on the amount borrowed and interest rate. Taking out a personal loan can be much cheaper than using a credit card simply because personal loans offer lower interest rates, and they can be paid back even before the scheduled payment. 

Unsecured personal loan

What’s great about most NZ-based lenders is they allow unsecured loans, making it easier for borrowers to apply and take out the money they need. Similar to other kinds of loans, an unsecured personal loan is the amount you can borrow without showing security on the debt. Your lender would only need your identification and assign you with an interest rate varying from 6% or up. Harmoney NZ offers the lowest unsecured personal interest with only 6.99%. 

Secured personal loan 

A secured personal loan, on the other hand, is where your lender requires security, typically backed by personal assets like a vehicle, home, or any valuable item you own. These properties will serve as collateral in case that you fail to pay off your loan.

Why get a personal loan?

There can be several reasons as to why you should take out a personal loan. By the term itself, it’s a borrowed amount that can be used for personal expenses. These personal spending however should be limited only to circumstances where you necessarily need it. Personal loans in NZ can go from 6% up to 12% based on your current creditworthiness. 

You can use your personal loan in the following situations: 

    1. Debt consolidation- to pay off multiple debts due including credit card debt. 
    2. Emergency assistance- hospital bills, unexpected car repair, funeral expenses.
  • Car financing- in cases when you want to buy or lease a car. 
  • Home renovations or moving costs- fixing or making upgrades to your home.
  • Moving costs- to cover for major expenses when moving out of town. 

    Find the best personal loans in NZ using glimp’s comparison tool today! 

    How many personal loans can you have at once?

    You can have as many personal loans as you want. There is no law limiting you from applying for multiple personal loans in New Zealand. However, lending companies have certain limitations when it comes to the amount of money that they can lend you, and sometimes ask you for your credit profile if need be. Remember why you applied for a loan in the first place. To help you out, here are some things you need to take note of and questions you can ask yourself before taking out a personal loan. 

    1. “Do I really need to borrow money?”- money sparks joy but it could also be a cause for stress and problems if you don’t use it responsibly. You can wait a little bit or save the money you need instead. 
    2. “Can I make repayments on time?”- repayments differ based on the amount of money you borrowed plus interest. You can use an online debt calculator (found here at glimp) to work out how much the loan will cost monthly, quarterly or bi-monthly based on your chosen repayment schedule. 
    3. Before finalising your loan, understand fees that may be charged to avoid unnecessary payments. 
    4. If you’re thinking of taking out a secured personal loan, make sure that you can pay off the loan on time or earlier so you won’t have to repossess or buy back your secured property on the debt. 
    5. Take advantage of the free debt counseling from your local financial agent or service or inquire with your chosen lender about your personal loan before applying for one.

    Source: Society One: Personal and Payday Loans 

    What is a payday loan?

    Payday loan is a short-term loan where a borrower is subject to high interest rates based on their income. It is likewise referred to as “cash advance” loans which should cover you until your next paycheck arrives. So far, New Zealand hasn’t come up with regulations about payday loan rates. If you're unaware of the consequences (e.g. establishment fees and other hidden charges) that come with your payday application, you should consider researching lending companies and their respective fees and interest rates.

    Why get a payday loan?

    If you need the money ASAP, you can opt for a payday loan only if you’re certain that you can commit to paying an extremely high interest rate. Another reason why some individuals are enticed to get a payday loan is because there's no credit check needed, so if you currently have a negative credit score and would like to take out a loan, you can go for a payday loan instead. You can find different lending companies that offer payday loans such as Advanced Cash, Smart Cash, and Cash relief. 

    Payday loan options to consider:

    Payday Advance

    • Annual Interest rate: 49%
    • Establishment fee: $90

    Other charges:

    • Default fee: $10
    • Letter fee: $5

    Smart Cash

    • Annual Interest rate: $49
    • Establishment fee: $30

    Other charges:

    • Payment process fee: $5
    • Same day access to funds fee: $10
    • Wage deduction fee (if applicable): $20
    • Rescheduling fee (if applicable): $20
    • Default fee (if applicable): $30


    • Annual interest rate: $49.45
    • Establishment Fee: $90

    Other changes:

    • Account management fee (monthly): $10
    • Change fee (if applicable): $30
    • Dishonour fee (for every missed or dishonoured payment): $10
    • Letter fee: $5
    • Wage assignment fee (if applicable): $30
    • Credit Agency fee: $20
    • Collection Agency fee: up to $30

    Can’t Wait 

    • Annual interest rate: $39.99
    • Establishment Fee: $95 for loans up to $499; $150 for loans $500 and over

    Other changes:

    • Direct debit fee: $5
    • Schedule Change fee (if applicable): $10
    • Default fee: $10

    Which one should I get: Payday or personal loan?

    If you need the money right now, you can consider applying for a payday loan. But, if you can wait a little longer, it’s better to stick with a personal loan. With all the fees and numerous charges in a payday loan, it’s possible that you will need to take out another loan just to pay off your current one. Although some people use this as a last resort, it’s not the wisest move, especially when you have debts and expenses piling up. 

    To learn more about personal loans and financing, you can visit glimp and find the best personal or payday loan for you!

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