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How to shop for payday loansAre you considering a payday loan? SuperMoney’s free payday loan company reviews and comparison tools can help you find the best option available. Read on to learn everything you need to know about payday loans.
Payday loans: a very expensive form of creditThe first thing you need to know about payday loans is that they are a very expensive form of credit. Think 390% to 780% annual percentage rate (APR). This may not prove that they are evil and predatory. But it does mean they should not be the first place you look when you need cash. Only consider a payday loan in an emergency and if you don’t qualify for lower-cost sources of credit. Before you commit to a payday loan, look into such lower-cost forms of credit as personal loans and credit cards. Also make sure you’ve exhausted such other sources of emergency funds as getting a side job, selling (or pawning) things you no longer need, or borrowing from friends and family.
Payday loans: dangerous even as a last resortMeet John. He is having trouble paying his bills and making the rent on time. So he takes a cash advance on his paycheck. He repays his creditors and makes it through another two weeks. Problem solved? Hardly. Payday loans are different from personal loans, mortgages, and credit cards. With rare exceptions, you can’t repay payday loans slowly over time. You have to pay them all at once. Let’s say John is $375 short on his rent. John only has to agree to pay a one-time fee of $55, and the cash is his. If your alternative is not paying your rent, a $55 one-time fee doesn’t sound that bad. However, two weeks later, the payday loan is due, and John’s financial situation hasn’t improved.
Going from bad to worse: a common outcomeThere is no way John can afford to pay $375, but he can afford the $55 fee required to renew the loan. If John is a typical payday loan borrower, he will do this repeatedly until he has paid $520 in fees for that initial $375 loan. Over 80% of payday loans are rolled over or followed by another loan within 14 days. So, eight out of 10 payday loan borrowers cannot afford to repay their loans in full and are forced to pay additional fees to renew them. According to a study by The Pew Charitable Trusts, millions of Americans use payday loans every year, spending an average of $520 in fees to borrow $375 repeatedly. The average borrower is in debt for 7 months, which amounts to 14 cycles of payday loans and fees. The one simple loan turns into an ordeal that goes on for more than half of the year.
When to consider a payday loanEvery year, more than 12 million Americans spend over $7 billion on payday loans at over 20,000 storefronts and hundreds of websites. Expensive though they are, payday loans are extremely popular. No doubt this is because they provide a fast and convenient source of cash and are pretty easy to get. But their outrageously high interest rates and short repayment terms seem to outweigh their speed and convenience. In many cases, they push borrowers into a cycle of debt that leaves them worse than when they started. Even so, there may be times when risking a payday loan is justified. Payday loans may be a valid choice if you have no cheaper options and need to fix your car to get to work and keep your job. Though payday loans are very expensive, they could be cheaper, or less risky, than certain funding sources you might use instead. For example, you might consider just taking your checking account into overdraft. Why not write the auto mechanic a check that you know you can’t cover? That at least gets you back to work. But, depending on the size of your overdraft, your bank’s overdraft fee ($35 is common), could amount to a higher financing cost per dollar than a payday loan. And intentionally passing a bad check carries risks that payday loans do not, such as criminal charges. Compared to this source of funding, payday loans start to look pretty good. If payday loans are your best option, it’s important to understand how they work. This will help you get the best possible deal and avoid payday loan scams.
What are payday loans and how do they work?Payday loans, also known as check loans and cash advance loans, are short-term, high-cost loans that are typically due on your next payday. Depending on where you live, payday loans may be available through storefront payday lenders or online. Payday loans are secured by a personal check from the borrower, or by electronic access to the borrower’s bank account. In the case of the check, the borrower writes the amount borrowed plus the cost of borrowing. When the pay date comes, the lender cashes the check or withdraws the amount due from the borrower’s bank account. If you can’t afford to pay in full, some lenders offer longer-term installment repayment plans or allow you to roll the loan over to your next payday if you pay additional fees.
What are the key features to consider when comparing payday loans?Some key features to consider when comparing payday loans are:
- Loan amounts. (Greatly dependent on state laws. Average range is $100 to $1,000.)
- Finance charges (rates and fees). These range from $10 to $30 to borrow $100 (390% to 780% APR).
- Length of term. (Average is about two week.)
- Eligibility requirements.
- Availability — payday loans are not available in every state.
- Direct deposit to your account.
- Instant approval decision.
How much money can I borrow with a payday loan?The exact amount will vary depending on your state’s laws and your income. State regulators mostly allow payday loan amounts between $300 and $1,000. However, some lenders will offer payday loans of up to $2,500.
Which payday loans have the fastest approvals?Depending on what time and what day you apply, you can usually get approved within minutes. However, approval and processing speeds vary by lender. Some can provide same-day funding while. Others can take a few days to clear. If speed is your main concern, visiting the physical location of a payday lender usually is the fastest way to get your money.
Which payday lenders have the lowest fees?Payday loan fees vary considerably by state and lender. They range from $10 to $30 for every $100 borrowed. A fee of $15 per $100 is common. This is the equivalent of a 400% APR for a two-week loan. So, for example, if you need to borrow $300 before your next payday, and if the fee for your loan is $15 per $100, it will cost you $345 to pay the loan back. One of the advantages of using SuperMoney’s payday loan reviews is that they provide you with the equivalent APR of payday loan fees so you can compare them to other credit options. In some states, lenders can also charge a late fee if you don’t pay your payday loan on time. Remember, your bank or credit union may also charge you a fee if your check bounces or an electronic authorization goes unpaid because you lack the funds. Rollover fees are another consideration when comparing the cost of payday loans. In some states, lenders can extend the due date of your loan for a fee, which is called a rollover fee. This fee is added to your balance, which must be paid in full by the next payday cycle.
How can I find payday loans near me?SuperMoney’s payday loan reviews and comparison tools make it easy to filter payday loan companies by the states in which they operate. Select your state and any other must-have requirements in your payday loan search. Some lenders only operate online. To get funds from them, you’ll need to transfer the money to a bank account. Other companies have a wide network of payday loan storefronts, which can often process a payday loan application faster than online lenders.
How can you determine whether a payday lender is safe?Payday loans are expensive, but as long as lenders abide by state laws, they are safe. Browse vetted online payday lenders below. Always check what other borrowers say in our payday loan reviews before you ask for a loan.
Do payday loans have a fixed or variable rate?In most cases, payday loans have a fixed fee and repayment period. This makes them equivalent to a fixed rate loan.
Are payday loans secured or unsecured?Payday loans are unsecured loans. Unlike mortgages, most auto loans, and pawn shop loans, payday loans do not require collateral to secure them.
What’s the easiest place to get a payday loan?Payday lenders fall into two types: brick-and-mortar stores and online lenders.
- Brick-and-mortar payday loan stores: Payments are issued in cash, in-store. Borrowers submit post-dated checks made out to their lenders. The lenders deposit these on the designated repayment dates.
- Online direct payday lenders: With direct online payday lenders, loans are issued and collected electronically as deposits and withdrawals to and from borrowers’ bank accounts. The process is executed through the Automated Clearing House (ACH) system.
Have I considered all viable alternatives?Before risking that payday loan with its very high APR and quick repayment requirement, make sure you’ve considered your alternatives. Have you, for instance, looked into all the following possibilities?
Reduce your expensesAnalyze your budget to see if there is anywhere you can cut down on your spending. For example, can you get more creative with your meal planning to save on groceries? Can you carpool to cut down gas expenses? Make a list of how you can save more and put it into action. This won’t eliminate a need for cash you have right now, but it could prevent your facing the same need in the future.
Find a side jobIf you keep coming up short on cash, investigate potential side gigs you can pick up in your spare time. Examples include content writing, transcribing, translating, or being a virtual assistant. You may find it surprising how many jobs you can do from home.
Sell unneeded itemsBefore you decide to borrow, look around your home to see if you have any items of value that you no longer need. If you do, selling them can get you the quick cash you need, and you won’t have to worry about paying anyone back. Facebook Marketplace and Craigslist, for example, make it easy to connect with buyers.
Take out a personal loanPersonal loans offer better rates and terms than payday loans. If you don’t think you will get approved, you may be in for a surprise. There are now many online lenders that cater to the full range of credit scores. You can review a wide range of lenders and apply without hurting your credit score, and you’ll get an answer in minutes. To make things easier, we’ve put together a list of the best personal loans to help you compare various fees, rates, and reviews.
Apply for a line of creditLines of credit offer flexibility and quick access to cash. Rates vary from single-digit APRs to rates that are higher than the average payday.
Get a credit card cash advanceIf you have a credit card, you can check to see if it allows cash advances. Most do. The rates will be lower than payday loans, and the repayment terms will be more flexible.
Borrow from your 401(k)If you have a 401(k), you likely have the option to borrow against it. Doing so does not require a credit check. Further, loan terms usually go up to five years, and interest rates are competitive. The drawback is that your investments won’t grow until the loan is repaid.
What do you need to qualify for a payday loan?How do you qualify for a payday loan? Can you get one without a checking account, reference, credit score, ID, or pay slip? Here’s what you need to know. To take out a payday loan, you’ll need:
- Proof of income (not necessarily employment).
- Proof of an open and active checking account.
- Valid government-issued identification.
- To meet the minimum age requirement.
Frequently asked questions about payday loansPeople considering payday loans often ask similar questions. Some are concerned about how payday loans might affect their credit. Others wonder what their options will be if they can’t repay a payday loan on time.
Do payday lenders check your credit?Brick-and-mortar payday lenders typically don’t run a credit check, but online payday lenders sometimes do perform a check.
Will your payday loan affect your credit?According to the Consumer Financial Protection Bureau (CFPB), payday lenders don’t usually report to the credit bureaus. That means that, no matter how reliable you are with your payments, it won’t raise your credit. However, if you default on the payment and the account gets turned over to a collection agency, that may appear on your credit.
What is the best payday loan for bad credit?The best payday loan for bad credit is the one that you qualify for and can afford to pay back without incurring late fees. Obviously, a lot depends on how much you want to borrow and what terms you require. Some lenders advertise “no credit check” payday loans. Although some lenders don’t perform credit checks, lenders who promise “no credit check” usually mean they won’t perform a hard pull on your credit. They may still do a soft pull. Unlike hard credit pulls, which can ding your credit score by a few points, soft credit pulls are only visible to you and will not hurt your credit score. Other lenders advertise “no credit check” because they check your financial history using alternative credit reporting agencies. That is, they check with agencies other than the three national credit bureaus (Experian, TransUnion, and Equifax).
Can you apply for a payday loan during bankruptcy proceedings?While doing so may be possible in some cases, you can get in trouble with your trustee if you take out a payday loan without court permission. If that happens, you run the risk of having your case dismissed and thrown out of bankruptcy court.
Can you get denied for a payday loan?It is easier to qualify for a payday loan than practically any other source of credit. But that doesn’t mean you’re guaranteed an approval. It is possible to get denied for a payday loan if you can’t verify your source of income or you have a history of not paying back loans.
Can payday loans go to collections?Yes, payday loans can go to collections. You should assume that they will do so if you do not repay them according to the terms and conditions.
Can payday lenders sue you?If you don’t repay your payday loan, the lender can sue you. The lender can also hand off the account to a collections agency that can also sue you. If a judgment is successfully filed against you, the lender or collection agency can pursue other means of collecting your debt, such as wage garnishment. Whether a lender opts to sue you depends on the lender and on your specific circumstances. If you stay in contact with the lender or collection agency and try to work out a payment agreement, you make a lawsuit much less likely.
Can payday loans be included in a bankruptcy?Generally, payday loans can be included in a bankruptcy filing, as they are unsecured debts.
Can payday lenders garnish your tax refund?Federal law only allows state and federal government agencies to garnish a tax refund as payment toward a debt. However, once the refund is in your bank account, payday lenders may be able to access the funds, depending on your state laws.
Can payday lenders file criminal charges?Criminal charges cannot be filed against you for failing to repay a payday loan. However, if you’re sued and fail to appear in court, you can face criminal charges.
Can payday loans garnish social security benefits?Social security benefits are exempt from garnishment by private creditors in most cases. However, the funds may be accessible once they hit your bank account. Laws vary by state.
Will payday loan lenders work with you or settle?If you are at risk of defaulting on a payday loan, most payday lenders will attempt to work with you. But proceed with caution. Payday lenders are often willing to roll over balances and extend terms, but there are expensive fees to consider. A better approach may be to try to settle for less than the total amount due. If your payday lender won’t settle, you may have better luck once they’ve handed the loan off to a collection agency. However, collection accounts can stay on your credit report for up to seven years.
Will payday lenders freeze interest?In most cases, payday loan lenders will not freeze the interest. Default rates are high with payday loans, so lenders are unlikely to waive fees and interest when a borrower can afford to pay them. Having said that, it is generally best to talk to your lender and negotiate when you can’t afford to make a payment.
Can payday loans be consolidated?Payday loans can be consolidated. However, for those with poor credit, it may be difficult to get approved for a consolidation loan. You can find out in a few minutes if you qualify for one here.
Where are payday loans available?Payday loan regulations vary by state. Each state decides whether to offer payday loan licenses. Individual states also set the maximum loan amounts, maximum loan terms, and permitted finance charges. Use our search filters to see which lenders are available in your state.
How can you check whether a payday loan company is a scam?First, determine if the payday lender is licensed to operate in your state. The Federal Trade Commission (FTC) requires lenders to register in the states where they do business. If you have any doubts about a lender, it’s a good idea to get in touch with your state attorney general’s office and find out whether the lender is registered in your state. Some states prohibit payday lending altogether. The table below provides a summary of the state payday loan regulations Second, check what other borrowers say about a lender in SuperMoney’s payday lender reviews. A pattern of unresolved complaints is a classic red flag for a scam. Finally, look out for unscrupulous business practices often used by scammers, such as guaranteeing a loan approval or requiring upfront payments to “process” your loan. Not having a physical address or having a website that isn’t secure are other telltales you should look out for when comparing payday loan companies.
ConclusionIf you determine a payday loan is the best option for you, follow these tips to minimize the cost.
- Use SuperMoney’s comparison tools to filter the list of payday lenders below.
- Shop around for the lowest available fees.
- Borrow only what you need and repay the loan as soon as possible.
- Avoid loans with excessive administrative fees or prepayment penalties.
- Check out payday loan company reviews before providing personal or financial information.