The Difference between Short-Term Loans and Payday Loans

The term short term loan and payday loan are often used interchangeably. To complicate the issue further, a payday loan is in essence a type of short term loan. What the terms mean exactly depends on the loan vendor but generally speaking, there are subtle differences between the two loans. The similarities and differences can be found in the application process, loan amount, approval and loan duration.

Application Process

The application process for both short term loans and payday loans is largely identical. Some of the questions you can expect include your age (you must be 18 or older to qualify), your UK residency status, British debit card or bank account, employment status, address and phone number.

Note that these vendors use third-party firms to verify the information you provide especially with regards to your employment status. Lying on your application is a sure way to get rejected for your loan request.

Loan Amount

There is a significant difference in the maximum amount you can borrow with a short-term loan vs payday loan. Payday loans by design are meant for petty or small emergencies such as fixing your car, paying bills or buying food before your pay check arrives. Short-term loans may be used for large purchases, paying vendors and generally larger financial demands.

You can therefore expect a larger amount from a short-term loan than a payday loan. The exact amount you may be eligible for largely depends on the vendor.


Although the application process for both types of loans is often identical, the criterion for approval is different. Remember that you can borrow larger amount with short-term loans compared to payday loans.

If you have exceptionally poor credit or have a history of defaulting on loans, you may have an easier time applying for a payday loan compared to a short-term loan.

Loan Duration

Another distinct difference between payday loans and short-term loans is the repayment duration. As the name suggests, payday loans are intended to be repaid the next time you get your check. In this case, you leverage your pay check as security for the loan so the loan amount is typically covered in one payment.

Short-term loans on the other hand extend over the course of a few months and sometimes up to a year depending on the vendor and the contract terms. This option is attractive for people who can’t cover the amount in a single payment. The downside of the short-term loan is the money continues to attract interest the longer you stretch the repayment.

The difference between short-term loans and payday loans is most times subtle and easy to miss. More important than the differences however is a lender who is upfront about the type of loan he is offering and the details of the offer including interest rates, monthly payments, charges and fees and so on.

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