Editor's choice: OppLoans Installment Loans
- Easy online application
- Quick approval
- Fast funding
- Long repayment terms
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When the unexpected happens and you have nowhere else to turn, a payday loan might be the solution. But treat it as a last resort — it’s one of the most expensive types of financing. We’ll help you understand how these loans work and what to consider before borrowing, plus provide you with some alternatives.#N/A
Payday loans come with some of the highest interest rates around and are meant as financial relief when you have no other option. They’re one of the most expensive loans out there. And if you’ve lost your job or have limited income, it can be even more costly.
That’s because the real cost of payday loans comes when you renew your loan — it comes with a fee that can double the cost or more. Renewing your loan multiple times can trap you in a cycle of debt, landing you in a worse financial situation than you were in when you took out the loan.
If there’s a chance you’ll miss your repayment, consider alternatives or see if you can negotiate any of your bills down.
Lenders charge a fixed fee that varies based on your state laws and the amount you borrow. In general, it can be anywhere from $10 to $30 for every $100 borrowed. This results in a high APR that can often be 300% or more.
If you decide to borrow, read over your loan agreement carefully. It should outline the total cost of your loan as well as any additional fees you may have to pay. If you don’t understand the costs, speak with a customer service representative before signing the loan agreement.
Learn more: 5 places to find low-cost short-term loans
The fees a lender can charge will vary based on the laws of your state. However, these are the top five most common fees associated with borrowing a payday loan.
Not usually. Payday loans have a high APR, but it isn’t because of a high interest rate. APR is an expression of the loan’s total cost as a percentage, which includes both interest and fees.
Since payday loans have such short terms — sometimes as little as just seven days — there’s not enough time for interest to add up to a profit. When it comes to payday loans, a high APR is a reflection of the loan’s high fees, not its high interest rate.
Payday loans have some of the shortest terms and highest fees, which make them one of the most expensive forms of credit available. These four points are the main differences you’ll find between payday loans and other types of credit:
Although the actual application process will vary based on the lender you choose, these are the typical steps you’ll need to follow to apply for a payday loan.
Like the application process, the specific requirements you need to meet will vary by lender. However, most lenders have similar criteria:
Meeting these eligibility requirements does not guarantee you will be approved for a loan.
Though required documents also differ by lender, you’ll generally need to provide the following:
Before you commit to a lender, consider the following:
Use a mobile app to get a cash advance with a small fee.
Borrow up to $1,000 from a federal credit union.
Take part in a rotational savings club.
It depends on where you live. Some states prohibit payday loans altogether by enforcing a cap on interest rates, called a usury law. Others restrict how much payday lenders can charge or impose other regulations to protect borrowers. Unfortunately, many states allow payday lending without enforcing heavy regulations. You can browse payday loan regulations by state or view our loan-by-city directory to find out which options are available to you.
Payday loans are banned in more than a dozen states — and heavily regulated in even more — with good reason: Payday lending is one of the single most predatory forms of credit available and can easily ruin your finances when you’re already in a pinch.
When APRs reach over 1,200%, it’s glaringly clear that these seemingly quick fix-it loans are anything but. State regulations are put in place to protect consumers. Racketeering laws, criminal usury statutes and even state constitutions are used to cap loan rates.
Ultimately, these protections are put in place to help borrowers avoid a debt spiral that payday lenders set them up for. Even former President Barack Obama spoke out against payday lenders during his presidency, accusing them of being predatory and trapping borrowers in a cycle of debt.
Before you dive into a product marketed as a one-stop financial Band-Aid, consider your alternatives. Though they aren’t significantly better, installment loans can come with slightly less egregious terms and more manageable payments. And while it may require a level of humility and openness, asking to borrow from friends or family could be another possibility.
You can also look into alternatives to borrowing. Social services may be available in your area to those in need. Even if you aren’t sure if you qualify, it’s worth researching local assistance programs for food, housing and other necessities. These services may also be able to help you identify and address any structural issues that can keep you in debt, such as a lack of a budget or overspending.
Though you may not have a lot of extra time, a side gig could also be an option. Ideas include driving with a ride-share service like Uber, walking dogs, participating in research studies or even taking online surveys to earn more cash. If you find yourself regularly needing small amounts of money to last you through the week, consider exploring ongoing freelance opportunities in your area of expertise — Upwork and Fiverr are a few places to start.
Payday loans have both a high rate of default and repeat borrowing, which could trap you in a debt cycle and even more financial distress than when you started. By researching your many options, you may be able to avoid getting caught in dangerous lending while still getting the money you need.
How you repay your loan depends on the lender you apply with. Here are three of the most common repayment methods:
Make sure you understand your repayment terms before signing the contract. Some lenders may only set up renewal or rollover fees on the day your loan is due, meaning you can extend your loan term instead of paying it off at that time. In some cases, you may get three months or more to repay your payday loan.
It’s not uncommon to have trouble paying off a payday loan, but sometimes it’s unclear what your lender can and can’t do to get the money you owe. If you default, your lender will likely turn your debt over to a collection agency.
Debt collectors sometimes take extreme measures to ensure you repay what you owe, some even going as far as — illegally — threatening you with jail time. While you can’t face criminal charges for defaulting on a cash advance, your lender can sue you for assets to cover what you owe.
You won’t be able to apply for a new loan unless you’re a returning customer.
This debt settlement company accepts balances as low as $5,000 with typical savings 25% to a high 32% of your enrolled debt.
Bank of America is offering loans from $100 to $500 for a $5 flat fee and 90 days to repay starting in January 2021.
A standard connection service without many details on its lenders.
Get matched with funding up to $35,000 secured by your car title — though it’s unclear what states its partners lend in.
Borrow up to $300 — but membership fees aren’t transparent.
Grants, nonprofit assistance and other options to cover your bills.
Compare 3 federal credit unions that offer low-cost short-term loans.
New laws make borrowing larger amounts more affordable.
Compare 3 federal credit unions that offer low-cost short-term loans.
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