3 Times Payday Loans Make Sense

A payday loan, also called a cash advance, is a short-term loan for a relatively small amount of money, usually less than $1,000. It gets its name from the fact it’s meant to provide funds between paychecks and be repaid when the borrower receives his or her next check.

Like all loans, payday loans work by a lender extending funds to the borrower with the promise of repayment with interest. However, payday loans usually carry very high interest rates, another reason why it is best to pay them off as quickly as possible so that you don’t pay far more than you originally borrowed.

The average payday loan interest rate is 400%, but rates can go much higher or lower, particularly in states with no rate cap. Shorter-term loans also incur higher interest rates because you will be paying less interest since short-term loans usually have lower loan amounts and shorter time periods.

Qualifications vary slightly by lender, but in most cases, you’ll only need valid identification, proof of employment with pay stubs and an active checking account.

Payday loans are designed to be paid back with your next paycheck. You will need to contact the lender for exact instructions. Most lenders require your checking account information when you apply, and the amount you owe is automatically deducted on the due date.

If you can’t pay back your loan for any reason, contact your lender immediately to discuss alternatives. You may be able to get an extension, though this often entails additional fees. Keep in mind as well that you’ll pay more in interest. That’s why it’s critical that you only take out as much as you need and which you can repay as quickly as possible.

If you find yourself in a position where you need funds quickly and don’t have enough money saved, consider taking a personal loan from a local bank or friends or family. You might also consider a cash advance on a credit card. Even though this usually involves an interest rate higher than your normal credit card balance, it will still be much lower than any rate a payday loan service will offer.

If you need money for an unexpected bill, you might be best served by contacting the creditor directly. Explain your situation and try to arrange a payment plan. You might also consider emergency assistance programs directly through the utility company or your local department of health and human services office.

Online companies like Lendup and Opploans specialize in small loans and credit opportunities for borrowers with less-than-ideal credit. The APR is high but lower than many competitors in the payday loan industry.

All lending institutions must be registered in the state in which you live. If a payday loan company tries to get your business without being licensed in your state, that should send up a big red flag.

Payday loans should not require a deposit or collateral. A lender may ask for a processing fee, but the charge is usually added to the loan and not asked for upfront. If a lender asks you for a prepaid debit card at any point, avoid them.

If you’re applying online, look for the green lock symbol in the URL bar. If it’s red or completely missing, the lender’s site is not guaranteed secure and confidential. This isn’t always a sign of a scam, but it’s definitely an indicator you should be wary.

More than anything, you need to be certain your lender is licensed to operate in your state and is reputable. Read online reviews and look out for anything that sounds suspicious or shady.

Make a list of potential lenders and compare their terms and rates. It can be tempting just to go with the one offering the most money or the lowest interest, but make sure you check out other factors like the length of the loan and what their policy is in the event you are unable to repay your loan on time.

Try to use a direct lender whenever possible. Affiliates and similar sites that allow you to receive offers from multiple lenders will distribute your information to dozens, maybe hundreds of companies, which will likely inundate you with calls and letters.

Finally, try to select a lender with a flexible payment schedule and that will allow you to set the payment date yourself and/or give you the option of paying biweekly or all at once.

The most important thing to keep in mind when using a payday loan service is to only borrow as much as you need and repay quickly. Otherwise, you can get caught in a vicious cycle of being unable to pay off the loan and then having to either extend the original terms or take on an additional loan to pay the previous loan.

Due to their high interest rates and short-term nature, payday loans are designed to be relatively small and temporary solutions to financial problems. Although they’re often used to pay unexpected bills or higher-than-usual utility payments, don’t make a habit of relying on them every month. Instead, make a budget for yourself so that you can plan for those days between paychecks when money is tight.

Payday loans are primarily regulated by individual states, not the federal government. That’s why a company might be licensed to operate in the next state over but not yours. However, the Consumer Financial Protection Bureau, a federal agency created in 2008, issued a new rule in October 2017 to stop “debt traps.” The rule will require payday loan companies to determine a customer’s ability to pay while maintaining a certain standard of living before disbursing funds. The rule is meant to prevent buyers from getting entangled in an endless cycle of debt.

Payday loans seem to have an equal number of fans as detractors. Some customers see them as financial lifelines that help them make ends meet. Others, however, see them as operating in a legal gray market that preys on the vulnerable.

Not all payday loans are created equal, and some stand out as being safer bets. LendUp routinely ranks among the best in the industry. This online-only lender offers greater flexibility with its terms. If a loan extension is legal in your state, you can apply online without rolling over the original loan, meaning you don’t need to take out a second loan to pay for the previous one.

Check ‘n Go issues payday loans, cash advances and installment loans. It also allows you to get a cash advance if you are unemployed but have other income like Social Security or if you are self-employed or a freelancer and can prove regular income.

RISE offers longer-term loans than most payday loan centers and larger amounts. Loans can be repaid in multiple payments without prepayment penalties. After paying off your first loan, you’re eligible for reduced rates on future loans.

OppLoans offers competitive rates and loans without a credit check. Its rates range from 59 to 199 percent APR, and its loans go from 6 to 36 months.