Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
What is a payroll loan — and what should you look for in a lender?
What to know before taking one this quick but expensive option.
Updated
What is a payroll loan?
A payroll loan is a short-term loan — typically no more than $1,000 to $1,500 — that you usually repay when you receive your next paycheck, also known as a payday loan.
A payroll loan can get you cash easily, but it can also be very expensive, especially if you aren’t able to pay it back in full when it’s first due.
Compare online short-term loans
Check to see if any of these lenders provide loans in your state.
How to compare short-term loans
It’s an excellent idea to shop around before settling on a payroll loan or loan provider. Here’s what to look for when considering different lenders.
Reputation
Though reputable payroll loan lenders do exist, the industry as a whole is known for harboring seedy providers. Watch out for deceptive lenders and loan scams.
To protect yourself, thoroughly vet lenders and read customer reviews on reputable sites like the Better Business Bureau (BBB) or Trustpilot. If you’re considering an online lender, contact them for their physical address — any legitimate lender will readily give you details about themselves.
Interest rates
Compare interest rates among multiple lenders — a seemingly attractive rate might be beaten by a wide margin elsewhere.
Lenders often include an APR (annual percentage rate) which takes yearly interest charges and fees into account. However, some lenders express their rates as monthly percentages. Remember that if a loan’s monthly interest rate is 20%, its annual rate is 240% (or 20% times 12).
Fees
Many payday lenders don’t charge interest, but fees. You may be on the hook for origination, processing and insurance fees, depending on the type of loan.
Before taking out any loan, read the lender’s terms and conditions thoroughly. Be sure that you understand every fee you’re asked to pay, and ask for clarification if you don’t.
Repayment terms
Beyond reading the loan terms for fees, also look out for the loan’s requirements. Requirements include prepayment penalties, the date the loan is due and consequences if you fail to repay the loan.
Pay advances from an employer
Rather than taking out a payday loan, you might want to consider a pay advance. Some employers offer interest-free pay advance programs.
Even if yours doesn’t you might be able to get more affordable financing by using a pay advance app like Earnin. These typically allow you to access wages you’ve already earned and charge minimal fees — if at all.
Pros and cons of payroll loans
Pros
- Easy to qualify. Lenders rarely check credit histories for these types of loans, and the requirements are minimal.
- Get cash quickly. Many applications can be complete in minutes, and some lenders can get you the cash you need within one business day.
- Bank account not always necessary. Some payday lenders are able to provide financing even if you don’t have a checking or savings account.
Cons
- Expensive. Finance charges can be $15 to $30 per every $100 you borrow, depending on your state — which means if you take out a $500 payroll loan, you could pay $150 in fees.
- Short terms. Payroll loans are typically due in two weeks.
- Cycle of debt. Many borrowers fail to budget for repayment and end up taking out more loans just to repay the debt, allowing fees
Because it can be difficult to pay back an expensive payroll loan, you may want to look for other loans. For example, if you can qualify for a personal loan, you’ll find they are less expensive and often provide longer repayment terms.
Stuck in a payroll loan cycle? Here are ways to dig yourself out
Can I get a payroll loan if I don’t have a bank account?
Yes, you can get a payroll loan if you don’t have a bank account through two options:
- Prepaid debit card loans. You apply for your short-term loan either online or in a store, and if you’re approved, they transfer your funds into an eligible loan account. They then register a prepaid debit card with that account, and either hand it to you in-store or mail it to you.
- In-store loan. You apply for your short-term loan either online or in a store, and if you’re approved, you can pick up your money at the store.
- Cryptocurrency loans. If you have cryptocurrency or are willing to borrow in bitcoin, you might be able to qualify for quick funding regardless of your credit score and income.
Bottom line
Payroll loans can be easy to get but they can be extremely expensive. Because payroll loans have short terms and high fees, it can be tempting to renew them and get trapped in a cycle of debt.
To avoid this, consider alternatives like government services, low-interest payday alternative loans from a credit union or borrowing from friends and family. If those aren’t viable alternatives for you, compare your short-term loan options and be sure you can pay off the loan on time.
Frequently asked questions
Are payday loans available in my state?
More guides on Finder
-
Work for yourself? You might qualify for a larger PPP loan
You can now calculate your payroll expenses based on gross income instead of net profit. Here’s how it works.
-
9 steps to make the most of your debt relief program
Reduce your debt by around 30% after fees — but only if you can stick with the program. Here’s how.
-
Smallest businesses finally get a fair crack at a PPP loan. Do you qualify?
The White House announced new changes to PPP loans, helping the smallest businesses and opening access to people with student loan defaults or nonfraudulent felony convictions.
-
Should you sell on Poshmark or Tradesy?
Compare pros and cons of selling on Poshmark vs. Tradesy to help you get the most for your secondhand clothing, shoes and accessories.
-
FloatMe pay advance app review March 2021
Small cash advances perfect for avoiding steep overdraft fees.
-
What is a target-date fund?
Target-date funds (TDFs) automatically rebalance to take on less risk as you near retirement. Learn more.
-
How can you use your health savings account (HSA) as a retirement investment?
A health savings account (HSA) can help you get prepared for your retirement. Learn more.
-
How to deal with debt when you have bad credit
Credit counseling, debt relief programs and more options to consider.
-
Empower cash advance review
Solid option for those with Empower memberships. Not the right choice for everyone else.
-
Chime SpotMe overdraft protection review
No fees or tips required to access this exclusive online banking feature.
Ask an Expert