What are the differences between personal loans and payday loans?

Personal loans and payday loans both let you borrow money without collateral, yet they work very differently in terms of cost, repayment, and what people usually use them for. Banks or NBFCs usually offer personal loans for all sorts of projects, whether you want to upgrade your kitchen, pay wedding bills, or cover unexpected medical fees. With these loans, you can request a sizable amount, often starting around ₹10,000 and reaching several lakhs, and choose a repayment plan that runs from one year up to five years. Because the interest is much lower-usually beginning near 10 percent a year-and because you pay the same fixed instalment each month, many people find it easier to slot the cost into their regular budget.

Payday loans, by contrast, are designed for short-term, urgent cash needs. They are often available for much smaller amounts—sometimes as little as ₹2,000—and must be repaid in full by your next payday, usually within a few weeks. Payday loans frequently have very high fees and scant eligibility checks, and their interest rates can reach 400% APR. Payday loans are quick as well as simple to get, but if they are not paid back on time, they can get costly and put some borrowers in a debt cycle.

Payday loans are a last resort for urgent cash and come with far higher costs and risks than personal loans, which are better suited for larger expenses and offer structured, affordable repayment. Before selecting one of the two options, borrowers should carefully understand their needs and ability to repay.