What is a payday loan?
Updated: Mar 16
Are you in need of quick cash but don't have the time to wait for a traditional loan? A payday loan may be an option to consider. While we wouldn't advise payday loans nor payday advances, it is important to understand this option is out there for emergency situations. This should not be something that you rely on over a long period of time. If you are struggling and this is your only means of getting money, then please take advantage, and work hard to try and find your way out of this cycle.
There are a ton of resources here at The Saving Dude to help you with that.
What is a payday loan?
A payday loan is a short-term, high-interest loan (typically above 20%) that is intended to cover expenses until the borrower's next payday. It is typically for small amounts of money, ranging from $100 to $1,000, and is meant to be paid back in full, along with any fees, on the borrower's next payday.
When you take out a payday loan, the lender will give you the money you need upfront. Then, on your next payday, they'll automatically withdraw the loan amount plus fees from your bank account. If you're unable to repay the loan on time, the lender may allow you to extend the due date for an additional fee.
What is Needed for a Payday Loan
If you are considering a payday loan, it's important to understand the requirements you need to meet to be eligible. Here are the basic requirements for a payday loan:
A steady source of income: Most payday loan lenders require that you have a steady source of income, such as a job or government benefits.
An active bank account: You will need to have an active checking or savings account in order to receive the loan and repay it.
Proof of identification: You will need to provide a government-issued photo ID, such as a driver's license or passport.
Age requirements: You must be at least 18 years old to apply for a payday loan.
Residency: You must be a resident of the state where you are applying for the loan.
Is it a Good Idea to Get a Payday Loan?
Payday loans can be a good option if you need money quickly and have no other options. However, they can also be very expensive, and the high-interest rates and fees can make it difficult to repay the loan on time. If you're unable to repay the loan on time, you may be charged additional fees and your credit score could be negatively affected.
Before taking out a payday loan, it's important to consider all of your options. If you have a credit card or can borrow money from friends or family, those options may be less expensive in the long run.
What are the Pros and Cons of a Payday Loan?
Quick and easy to obtain
No credit check required
Can help you in an emergency situation
High-interest rates and fees
Short repayment terms
Can lead to a cycle of debt if you're unable to repay the loan on time
Why Would Someone Use a Payday Loan?
People may use payday loans if they have an unexpected expense, such as a car repair or medical bill, and don't have the funds to cover it. Some people will have a credit card available (the interest rate on a credit card is typically lower than a payday loan), or an emergency fund to cover these types of expenses, but that isn't the case for everyone.
Payday loans can also be used to cover living expenses if you're between paychecks. The unfortunate part of payday loans is their high-interest rates and, at times, predatory practices.
What is a Payday Loan Example?
Let's say you need $500 to cover an unexpected expense. You take out a payday loan with a lender who charges a fee of $75 for every $500 borrowed. On your next payday, the lender automatically withdraws $575 from your bank account to repay the loan. It's as basic as that.
Other payday loan companies will charge you a percentage of the amount you borrow, so take your time and figure out what the best deal is for you before you take out a loan.
Does a Payday Loan Hurt Your Credit?
Taking out a payday loan usually won't affect your credit score, as most lenders don't check your credit before approving your application. However, if you're unable to repay the loan on time and it goes to collections, that could negatively impact your credit score.
So, if you are considering a payday loan, make sure you borrow as little as possible and please be certain you can pay back whatever amount you borrow as well. Negative events like this will impact your credit score for a very long time and are extremely hard to clear in order to improve your score.
What is a Payday Advance
A payday advance is a type of payday loan. It is a short-term loan that provides you with a small amount of money to cover unexpected expenses until your next payday. Payday advances are designed to be quick and easy to obtain, and they can be a good option for individuals who are in a tight financial situation.
Payday advances usually have higher interest rates and fees than traditional loans, so it's important to understand the costs involved before taking out a payday advance.
Additionally, payday advances are not a long-term solution to financial problems and should only be used in emergencies.
Top 10 Payday Loans Online
If you're considering a payday loan, it's important to research lenders to find one that offers reasonable interest rates and fees. I am not advocating for any of the lenders below and am not a sponsor nor affiliate for any. This is simply a list that I compiled while conducting research for this article. Here are 10 payday loan lenders that you may want to consider:
Check Into Cash
ACE Cash Express
Check 'n Go
Instant Line of Credit No Credit Check
Some lenders offer instant lines of credit without performing a credit check. These lines of credit can be used like a payday loan, but they may have lower interest rates and fees. Here are a few lenders that offer instant lines of credit with no credit check:
Unsecured Payday Loans
Most payday loans are unsecured loans, which means you don't need to put up collateral such as your car or house to obtain the loan. However, because payday loans are unsecured, they often come with higher interest rates and fees compared to secured loans.
It's important to carefully read the terms and conditions of any payday loan you're considering and to make sure you understand the full cost of the loan before accepting it.
Payday loans can be a quick way to get cash in a pinch, but they can also be expensive and carry financial risks. It's important to carefully consider your options before taking out a payday loan and to make sure you have a plan in place to pay it back. If you're facing a financial emergency and are considering a payday loan, please do so cautiously!