Payday Loans

Payday Loans Provide Quick Cash
Payday Loans Provide Quick Cash

You used to be able to go to your local bank to ask for a small, short term loan when you had sudden, unexpected expenses, like needing new tires on the car or covering unanticipated medical bills. But today people use credit cards to act as short term loans, which means few banks will offer this kind of financial assistance. Even if you need cash, you can use your credit card in an emergency to receive a cash advance.

For people who either do not want to use their credit cards, are in credit card debt, or simply do not have credit cards, one of the only options left are Payday Loans.

Counting your pennies?
Counting your pennies?
Payday Loans are available just about everywhere.
Payday Loans are available just about everywhere.
Moneytree is a popular place for payday loans.
Moneytree is a popular place for payday loans.
Remember to look past the fancy payday loan pamphlets and read the fine print.
Remember to look past the fancy payday loan pamphlets and read the fine print.

ConsumerAffairs.com - Are Payday Loans A Good Idea?

What is a payday loan?

A payday loan is a short term loan between the day you need the cash and your next payday. These loans are intended for people who need to borrow money for a short period of time. They should only be used for unexpected expenses or temporary income reductions.

Payday loans are usually for amounts under $1500. If you need to borrow more than $1500, you should look into other kinds of financial assistance (like personal loans).

Payday loans are meant to provide short-term credit, but are not intended for frequent use. However, this doesn't mean a payday loan lender will turn you away if you choose to use these services often.

How do you qualify for a payday loan?

Each payday loan agency varies in the requirements from borrowers, but the most common qualifications include:

  • Proof of steady income
  • Proof of an open bank account
  • Proof of identity
  • Proof of residency

Credit history is rarely a factor when it comes to being approved for a payday loan, which is one of the reasons why it is so appealing to many people in need of an advance.

How do you repay a payday loan?

Most lenders require you to write a post-dated check when you make the loan. The check will not be posted to your bank account until the date on the check. You can also make cash payments on the loan before it comes due. Some lenders will set up automatic payments, allowing them to debit the amount out of your bank account.

What is the interest rate?

Interest rates are usually pretty high, but they vary depending on where you live. Some states have passed bills that put a cap on how high payday lenders can make their interest rates.

While a high interest rate isn’t a huge problem if you pay the loan back right away, it can really cost you a lot of money if you need to extend the amount of time to repay the loan.

How does a payday loan work?

Once you are approved for a payday loan, you write a check for the amount you need, plus the fee for the loan. The loan agency either gives you cash for the amount you borrow or deposits the amount into your bank account.

Here is an example of how a payday loan works:

You need to borrow $150 for two weeks, until your next paycheck, so you decide to get a payday loan. You can either go to a payday loan agency or fill out an online payday loan application. Once you qualify for the loan, you will promise to pay the agency $175 (the $150 that you need to borrow, plus a $25 fee to borrow the money). This promise is made either by you writing a personal check for the amount or by providing the lender with your bank account information to set up an automatic payment.

When your next payday comes, you have a couple repayment options:

  1. The lender deposits your check, and the money comes out of your bank account.
  2. You pay the lender back in cash, and they return the uncashed check to you.
  3. You extend the loan, and the lender charges you another financing fee.
  4. You agree to electronic payments, and the lender automatically debits the money out of your bank account.

Where do you get a payday loan?

There are many physical payday loan locations you can visit to fill out the paperwork. Most of these places advertise their services as “cash advances.” There are also many payday lenders available online, so you can easily find a list of them when you do an internet search for payday loans.

Payday Loan Costs
Payday Loan Costs

Payday Loan Testimonials

"I have used them and always regretted it. They get you out of a fix, only to get you into a bigger one. I would find myself taking out another PDL in order to pay the "interest" on another. I used my entire income tax refund to pay them off. They do serve a purpose, but there IS A PRICE." - Debra

"I do work place investigations and on two of them people that got these juice loans ended up stealing from their job and they both got fired. They still have the loans to pay off at about 400% and now they have no job either." – Brian T.

"I was broke four days before payday, and had a ton of bills to pay. It was hard to resist getting another payday loan. When I was in this situation before, I used to go to the nearest payday loan place and write a postdated check for $575—and leave with $500 in cash to help me out until I got paid. But the interest rate was 391% on the two week loan, so I would have to take out another loan to pay back the existing loan. I knew I was in trouble when I had six different loans with fees of almost $1000 a month. Now I know to resist the payday loans.” – Christi

Payday Loan Tips

  • Only use payday loans as a form of short-term credit.
  • Only borrow the amount that you will be able to repay from your next paycheck – do not borrow more than you can pay back.
  • Use a payday loan to cover an unavoidable cash shortage between paydays.
  • Always choose a lending agency that is licensed and well-reputed within the industry.

Check into Cash Commercial - What's Your Story?

Should you get a payday loan?

If you are getting a payday loan to cover a night out on the town, you probably should not take that loan. But if you choose to get a payday loan instead of having insufficient funds in your checking account, you might find that the loan fees and interest end up being less than what your bank will charge you for having a negative balance.

You need to stop and consider your options if your only choices are:

  • Take a payday loan
  • Don’t pay your bills on time
  • Overdraft your bank account

Each of these options will cost you more than if you simply had the money available, but you need to figure out which will cost you the least. Consider the following when making your decision:

  • Payday loans have fees and interest.
  • Not paying your bills on time will create late charges, could result in having services turned off, and/or could affect your credit score.
  • Bank overdraft charges can be pretty high. Plus, some banks will charge you an overdraft charge for having insufficient funds to pay the original overdraft charge. Depending on your bank, other fees could include a charge for having a negative balance (which could be charged each day you are in the negative).

You might find that payday loans could cost you a lot less than not paying bills on time or being stuck with overdraft charges from your bank. The APR (annual percentage rate) for payday loans seems high, but you have to understand that it is only set for a specific amount of time. When you compare it to other fees, it might be less. Examples:

For a 14 day term, a $100 payday loan with a $20 fee has a 521% APR. But, a $100 credit card balance with a $30 late feel has an 800% APR, a $100 bounced check (due to insufficient funds in your bank account) with $50 in bank fees has 1,304% APR, and a $100 power bill with $60 late or reconnect fees has 1,564% APR.

As long as you pay your payday loan back on time, it could end up being the least expensive alternative.

Payday Loans Trap Borrowers - Interview with Former Lender

Payday Loans – Good or Bad?

It might not be easy to choose whether you think taking a payday loan is a good idea or not. The commercials for the loans, and even the brochures and pamphlets the lenders provide, are very convincing about how helpful payday loans can be. However, there are a lot of groups, organizations, and testimonials about how bad these loans are for people.

What it comes down to is personal choice and responsibility. Payday loans can work for some people, but not everyone. In fact, they can cause even more financial troubles than if you simply went without the advance.

I’ve actually gone into a couple of payday loan agencies, and the employees are helpful, matter of fact, and friendly. The entire experience and atmosphere when you walk into some of these places feels professional. Yet, I couldn’t help but feel like I had walked into the land of used car salesmen on a mission to make a sale. I was torn between whether the places were convincing or gave me the shivers – but, if I was short on cash without any idea of where else to turn, I can see how people choose to use payday loans.

The bottom line: use these services responsibly and with caution. Payday loans can be helpful, but they can be harmful too.

More by this Author


Comments 22 comments

Woody Marx profile image

Woody Marx 8 years ago from Ontario, Canada

I'm not up on finances, but I always know a beautifully written, complete and timely hub when I read one. And this is one!


Chef Jeff profile image

Chef Jeff 8 years ago from Universe, Milky Way, Outer Arm, Sol, Earth, Western Hemisphere, North America, Illinois, Chicago.

Yikes! More consumer debt? I am still paying off that loan from years ago!

Great hub, and I learned that payday loans are not for me!

Thanks for helping me make an intelligent decision here.


Isabella Snow profile image

Isabella Snow 8 years ago

Wow, that's a lot of info!! Great hub! I feel like a loan expert now. ;)


cgull8m profile image

cgull8m 8 years ago from North Carolina

What happens when you are the boss :) Great Hub.


carauctionsonline profile image

carauctionsonline 8 years ago from United States

Good hub...I have seen people had run ins with payday loans, if you can't afford them...it isn't pretty


pfuller profile image

pfuller 8 years ago from Toronto, Canada

The biggest problem with payday type loans is that many end up in a never ending vicious circle. When they get paid they need to payoff their loan and then immediatley arrange a new one. Essentially they moved up their pay date a week or so but at a cost.


biglarry 8 years ago from San Francisco, CA

Very thorough. Nice to see something that isn't just propaganda from one side or the other.


kristendom 8 years ago

This sounds like predatory lending at its worst. The poor will get poorer and the predators will get fatter. How unfortunate to live in a society where dog eats human! Thanks for the hub, which is an eye opener indeed.


aussieplus profile image

aussieplus 8 years ago from Adelaide, Australia

"This sounds like predatory lending at its worst. The poor will get poorer and the predators will get fatter. How unfortunate to live in a society where dog eats human! Thanks for the hub, which is an eye opener indeed."

Well actually you are sort of right, however payday loans can allow the client to get much needed cash quickly and if they manage it right it can be very helpful in the short term. When you consider that most clients are female, working and in the 24 to 36 yr bracket, these are smart people and if they thought there was a better alternative, dont you think they would take it?

On the other hand there are many lenders who prey on the poor. People who can't get ahead no matter what they do. These people should be protected.


Clara Ghomes profile image

Clara Ghomes 7 years ago

Oooo.. so finally my search gave me some truly useful hubs :) Fantastic and detailed info on payday loans.. 5 stars on your way...

Thanks


Blackberry profile image

Blackberry 7 years ago

Payday loans are not a good idea. They will take every cent you have from your paycheck before you know what has happened then people think there is no way of getting out of the high payments but there are.


theppcguy profile image

theppcguy 7 years ago

Wow. That is one well researched and written hub! There are a lot of problems with payday loans. It's too bad that the banks won't take on higher risk borrowers for a better interest rate and the problems would be marginalized.


unemployed personal loans 7 years ago

theppcguy has a fantastic point. Payday loans are designed soley for one purpose and for banks to provide a similar service would be a very bad public relations execise. Banks wouldn't want to be seen as providing a service similarto loan sharking.


mjp 7 years ago

Payday loans can be a slippery slope... however if used carefully and paid down they can be great when in a pinch.. make sure you're aware of all the fees and total cost of borrowing before entering into that arena


jerry 7 years ago

wowie! Great Article. Loads of information. I think if you know you are going to payoff your payday loan right away and you need it for an emergency then it's ok, otherwise, you should find other options. If you are interested in getting a loan online, I recommend going to www.InstantLoanreviews.com or www.bestcashadvance.com


PayDay Loan Expert 7 years ago

Great article, I want to add that half of the payday loan Online companies are illegal. Allot of companies are not even based in the United States, or they are from Indian Reservations. Your states website will have a online database of authorized companies in their state who can offer payday loans. If they are not on the list they are not legally auth. to do business in your state. Most states have there own payday loan laws and regulations. An example is Ameriloan, and UnitedCashLoans. they are the same company and they are operated from a Indian Reservation. Or Zip19 which is operated from Canada. So be aware, what you are getting yourself into. Swallow your pride and borrow from friends and family.

On a side note if you borrow from a company who legally is not authorized to do business in your state, legally you do not have to pay it back. Morally you should.....


Get Fast Cash  7 years ago

You Never see great articles like this about Payday Loans! Great informative article. I am sure a lot of people will get a lot of great help from this one and the others you have written!


Paradise7 profile image

Paradise7 6 years ago from Upstate New York

Very good article. I just wrote a hub on the Dangers of Payday loans, but did an incomplete job, compared to this hub. Truthfully, I wouldn't recommend them to ANYONE! The long-run disadvantages far outweigh the short-term cash relief.


Amy 6 years ago

Moneytree has great service and their employees are awesome!


SallyTX profile image

SallyTX 5 years ago from Only In Texas!

Lots of great, detailed advice, thanks! I have used the cash advance option from my bank occasionally. This is like a payday loan with all of the same pitfalls, and has to be handled with care to be beneficial, but it's certainly better than an outright payday loan as far as fees go. Voted up and useful! :)


Afruchi Mog 4 years ago

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Pharme705 4 years ago

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