- Payday loans provide a quick influx of cash, but should be considered last resort options.
- You could pay interest rates that equate to 400% APR or more with payday loans.
- Alternatives include local nonprofits, churches, family members, and personal loans.
- Read more of Personal Finance Insider’s loan coverage here.
Payday loans are advertised as fast and helpful ways to get money to cover an unexpected expense. However, payday lenders can often use predatory practices to get borrowers to accept loan terms that severely damage their long-term financial health.
What is a payday loan?
A payday loan is a high-cost, short-term unsecured loan that has a principal that is a portion of your next paycheck. Payday loans are often for small amounts of money, commonly $500 or less. Payday loans provide immediate funds, come with extremely high interest rates, and are usually based on your income.
Payday loans are usually paid back within two to four weeks, and you can get them at a brick-and-mortar payday lender or online. Lenders usually don’t conduct a full credit check or take your ability to pay the loan back into account.
Different states have different laws when it comes to payday loans; some states ban payday loans entirely, while others cap the interest rates that lenders can charge. Continue reading “What are the cons of a payday loan?”