Payroll loans offer quick — but expensive — cash. Here’s what to know before taking one out.
Maybe you don’t have enough money to pay your rent or your car just broke down. Maybe a loved one has a medical emergency. If you’ve found yourself in a cash crunch, you may think that a payroll loan could help.
But take a good look at the lender: Providers have an array of fees and terms that’ll be important factors in your ability to pay back the loan.
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What is a payroll loan?
A payroll loan is an option that people pursue when they find themselves in urgent need of cash. It’s 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. Let’s discuss pros and cons of the payroll loan, as well as what to look for when comparing short-term loan lenders.
Here’s a selection of online short-term loans you can apply for
Check to see if any of these lenders provide loans in your state.
Pros and cons of payroll loans
Pros
- They’re easy to get. 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.
Cons
- Very expensive. You’ll pay significant interest regardless of how much you borrow. Finance charges can be $15 to $30 per every $100 you borrow — which means if you take out a $500 payroll loan, you could pay $150 in interest alone.
- Must be repaid quickly. Payroll loans are typically due in two weeks.
- Can trap you in an endless cycle of debt. It’s important to be sure you have the money to pay it back, including the interest and fees. Many borrowers fail to budget for repayment and end up taking out more loans just to repay the debt.
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
How to compare short-term loan lenders
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 Google lenders and read their reviews. 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.
Interest rates are often expressed in APR (annual percentage rate), but 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
You may not only pay interest on your loan — you might have to pay additional fees along the way. 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.
Fees can add up to substantial amounts. It’s worth taking the time to compare in order to avoid finding yourself unable to pay back the loan when it is due.
Loan stipulations
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. Make sure the lender hasn’t inserted questionable stipulations into the loan terms.
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.
Bottom line
Payroll loans can be easy to get. But that advantage is counterbalanced by a heavy downside: They can be extremely expensive.
Because payroll loans offer easy access to credit, they’ve pushed many borrowers down deep spirals of debt. To avoid the same fate, consider alternative options like personal loans 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.
