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Should I take out a payday loan?

With such high costs, they're best saved as a last resort.

Anna Serio
Anna Serio

Updated

With APRs that can top 700%, taking out a payday loan is one of the most expensive ways to borrow money. But when you don’t have any cheaper options, this type of short-term loan can help you stay afloat.

Compare providers and know the laws in your state to make sure you’re working with a legit lender. And stay on top of repayments to avoid getting caught in a cycle of debt.

What's in this guide?

  1. When should I consider a payday loan?
  2. When should I avoid payday loans?
  3. Are there any cheaper alternatives?
  4. Compare payday loan options
  5. Bottom line
  6. Frequently asked questions

When should I consider a payday loan?

A payday loan is designed to help you in an emergency. They might be useful in the following situations:

  • You have bad credit and need money fast. If you have bad credit, most options that are available to you on short notice are expensive. In this situation, a payday loan might be the least-expensive option out there.
  • You need less than $500 and need money fast. Loans under $500 on short notice can also be difficult to come by, regardless of your credit score. Payday loans are one of your few options.
  • You need money today. Payday loans are one of the few financing options available the same day — especially if you don’t have perfect credit, a car to use for collateral or need money on the weekend.
  • You don’t have a bank account. You need a checking or savings account to qualify for most types of loans. However, some payday lenders don’t require you to have a bank account and instead offer the funds in cash or on a debit card.
  • You don’t have a salary. A payday loan might be one of the few options out there if you rely on alternative sources of income, such as government benefits, a pension or alimony.

Payday loans vs. overdrafting your account

Overdrafting your account can be the closest alternative to taking out a payday loan — it’s fast, you don’t need good credit and you can get the money instantly. But it could actually cost more.

Most payday loans come with a $10 to $15 fee per $100 borrowed, depending on where you live and the lender. The average overdraft fee is $30, according to the Federal Deposit Insurance Corporation (FDIC). In this case, an overdraft fee might only be cheaper if you borrow more than $200 or $300.

When should I avoid payday loans?

Generally, you might want to stay away from payday loans in the following situations:

  • You live in a state where payday loans are illegal. Payday loans aren’t legal in all states. Check your state’s laws to avoid borrowing from an illegitimate lender.
  • You have time to qualify for a less-expensive alternative. The main advantage of payday loans is that they’re fast and available to borrowers with less-than-perfect credit. But there are payday loan alternatives that are significantly cheaper and come with fewer risks.
  • You have ongoing financial problems. A payday loan is a short-term solution to temporary problems. If you have ongoing financial difficulty, consider talking to a credit counselor who can walk you through your other options instead.
  • You already have a payday loan. Rolling over your payday loan can get you trapped in a cycle of debt and cost you three or four times the amount you borrowed in fees. If you’re struggling to repay a payday loan, also consider credit counseling.
  • You need more than $500. Most states cap payday loans at around $500. If you need to borrow more, this isn’t the right type of loan for you.
  • You don’t think you can pay it back. Many states require payday lenders to make sure you have enough income to repay your loan. But even if yours doesn’t, borrowing money you’re unable to repay will land you in an even worse financial situation.

Are there any cheaper alternatives?

Yes, though which option is best for you depends on your particular needs. They include:

  • Payday alternative loans (PALs). Some federal credit unions offer PALs between $200 and $1,000 to all credit types. APRs are capped at 28% and terms range from one to six months. But you need to be a member of the credit union for at least a month to qualify.
  • Pay advance apps. You may be able to get an advance on the salary you’ve already earned at little or no charge through pay advance apps like Earnin — sometimes as soon as the same day.
  • Employer paycheck advance. Some companies offer paycheck advances or short-term loans to employees — regardless of your credit history — often at a lower cost than a payday loan.
  • Government resources. If you’re experiencing a long-term financial setback, look into government resources available to residents of your state to help you cut down on living expenses.

Compare even more alternatives to payday loans

Compare payday loan options

Data indicated here is updated regularly
Name Product Filter Values Max. Loan Amount Turnaround time Requirements
OppLoans Installment Loans
OppLoans Installment Loans
$5,000
1 business day
Direct deposit, meet minimum income requirements, live in eligible state
Comes with the option to change your due date so you won’t fall behind on repayments.
Go to site
More Info
CreditLend connection service
CreditLend connection service
$2,500
Varies by lender
Regular source of income, checking account, not currently involved in bankruptcy or bankruptcy relief
Find a line of credit — even if you don't have a perfect score.
Go to site
More Info
Check Into Cash Payday Loan
Check Into Cash Payday Loan
$1,000
1 to 2 business days
Bank account, email address, phone number, US citizen or permanent resident, ages 21+
Plus, get access to check cashing, cell phone top ups, bill pay and more at one of its many storefronts.
Go to site
More Info
Fast5kLoans Short-term Loans Connection Service
Fast5kLoans Short-term Loans Connection Service
$35,000
As soon as the next business day
Regular source of income, verifiable bank account, US citizen, ages 18+
Get connected with multiple lenders you might qualify with — even if you have bad credit.
Go to site
More Info
LendYou Short-term Loans
LendYou Short-term Loans
$15,000
Same business day to 1 business days
$1,000+ monthly income, direct deposit, US citizen or permanent resident, ages 18+
Get offers from potential lenders in minutes by filling out just one online form.
Go to site
More Info
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Compare up to 4 providers

Bottom line

A payday loan can help in an emergency when you have no other options — and it can even be less expensive than paying overdraft fees. But you might want to look into your cheaper alternatives first to avoid getting caught in a cycle of debt.

You can learn more about how these short-term loans work by reading our guide to payday loans.

Frequently asked questions

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