Your Complete Guide to Payday Loans

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

payday loans

It’s easy to see why payday loans are so tempting.

Consider this scenario, for example. You’re $300 short on an important bill. Your next payday is 10 days away, your credit card balance is at its limit, and you can’t borrow from any of your friends or family. What do you do?

The answer isn’t straightforward because there aren’t a lot of stellar options in such situations. In this scenario, you might be tempted to use a payday loan, which can bridge the gap in your finances, but it likely will plunge you further into debt.

If your situation seems desperate, you can explore alternatives to get the money you need. Understanding how payday loans work and determining your options will empower you to make a wise financial decision.

Here’s how payday loans work

When you get a payday loan, you use your paycheck as security against the amount you borrow. When you apply for a payday loan, it doesn’t matter if you have bad credit or no credit, because the lender has the authority to take its payment from your bank account when you get your next paycheck. That’s how payday lenders minimize their risk.

How can they do this? When you’re approved for a payday loan, you give the lender a postdated check that it can deposit on your next payday. If you take an online loan, you authorize the company to take the funds from your bank account once you’re paid by your employer.

What happens when it’s time to repay your loan

Usually, payday lenders charge you a fee for every $100 you borrow. The fee can range from $10 to $30, according to the Consumer Financial Protection Bureau, depending on the lender and where you live.

Those fees might not sound like a lot, but they can add up. An average $15 fee can equate to an APR of almost 400% for a two-week loan.

You’re expected to pay back the entire loan and fee on your next payday. Unlike with a personal loan, you often can’t make installment payments on a payday loan. If you don’t have the money to pay off the full amount on your next payday, you might have to roll the loan over to a future payday. Of course, you’ll accrue more fees in the process.

Imagine this scenario: You borrow $100 and owe $115 when the lender’s fee is added. Two weeks later when the loan is due, you realize you can’t pay. So you pay the $15 fee and roll the loan over — meaning you owe $115 again because you haven’t paid back any part of the principal and you have a new $15 fee.

That fee might look small when you first take out the loan, but if you keep repeating the rollover cycle you can end up owing more than the amount you borrowed in the first place.

What makes payday loans set off a dangerous cycle

It’s easy to minimize the effect of a payday loan fee when you’re desperate for money. It’s natural to assume you’ll be able to pay the fee plus the principal on your next payday.

However, your paycheck usually is needed to pay for other expenses. Even if you try to set aside money to repay the payday loan, unexpected costs can derail that goal.

Perhaps you planned to cut your gas budget the next month to pay back the loan. But if the cost of gas goes up, your plan could unravel. If you can’t repay the full loan amount, you’ll have to roll over your loan.

“You get in this vicious cycle if you don’t pay it back when it comes due,” said Katie Ross, and education and development manager at the nonprofit American Consumer Credit Counseling. “Then you’re going to continue to get interest and fees on top of that every time you’re late.”

It can be difficult to get out of this cycle once you’re in it. “Unless you have a plan to repay the loan quickly, it’s most likely only going to worsen your debt situation,” said Ross.

“The larger your paycheck, the more likely you are to be able to set aside funds to repay your payday loan,” she added. “But if your paycheck isn’t much more than what you’re borrowing, or if you have a number of other bills to pay, you can see where the trouble starts.”

What to do if you need money before your next payday

“We’re concerned that people don’t have money when they need it. Banks are loath to lend money to people they consider high risk,” said Sara Nelson-Pallmeyer, executive director of Exodus Lending, a nonprofit that lends money to help people get out of a payday loan cycle. “A lot of times, people get payday loans because they don’t have the ability to get a loan on better terms.”

You might not be able to get a traditional bank loan to meet your quick-cash needs, but some of these ways of stretching your finances to the next payday might work better instead of a payday loan.

1. Use a credit card

If you have a credit card that’s not maxed out, you could use it to charge your expenses. Not only will your interest rate likely be lower than on a payday loan, but you’ll have 30 days to pay back the credit card balance before it incurs interest. If you can pay back the money by your next payday, a credit card could be a cheaper option.

2. Apply for a personal loan online

It’s possible to get a personal loan with bad credit. Some online lenders, such as LendingClub and Earnest, have loans for as low as $1,000 to $2,000. Avant requires a minimum credit score of 600 with an estimated APR that ranges from 9.95% to 35.99% — significantly lower than the estimated 400% that you’d be facing on a payday loan.

You can check your rates online and it won’t impact your credit score. Once you’re approved, the money is sent to you within one business day.

3. Consider a credit union if you have time

Credit unions offer payday alternative loans (PALs) that allow you to borrow between $200 and $1,000 for a term of one to six months. The APR is capped at 28.00%.

But you have to be a member of a credit union for at least a month to be eligible to apply for PALs. So they won’t be the best solution if you need money immediately.

4. Generate income quickly

There are a few things you can do to generate extra income quickly. One way to make extra cash is by selling some of your stuff that you can live without. Have clothes you can get rid of? Try selling them online or at local secondhand stores.

You also can explore renting out a room on Airbnb, trading in your unused gift cards for cash, or cashing in any unused rewards points on your credit cards.

5. Ask  your employer for an advance

Check with your employer if you can get an advance on your paycheck to tide you over. Ask your HR or payroll department if the company can find a way to help you out.

6. Seek leniency to reduce or delay payments

If you owe money on certain bills, it’s a good idea to call each creditor to request an extension on your balance due date until you have the money to pay it back.

Many companies will agree to this leniency or find ways to allow you to make partial payments on your bills. It’s worth checking areas where you can lower or hold off payments to get you through till payday.

7. Use emergency relief services to reduce your expenses

You might be able to save up for any upcoming payment by eliminating other expenses in your budget by using emergency aid services in your community. Here are some ways:

  • Local food banks: Reduce or eliminate your grocery bill by accessing the resources of a food bank in your area while you wait for your next paycheck.

  • Low Income Home Energy Assistance Program (LIHEAP): This is a program run by the federal government to help families meet their energy needs. The LIHEAP program also offers annual grants, which can’t provide emergency cash because you need to apply by September . However, you could use it to plan for the future.

  • Local community service agency: Many communities have nonprofit organizations that help residents in times of need. For example, Community Services Agency in Mountain Park, California, offers help with rent, utilities, and back-to-school expenses. Some local churches or other religious institutions offer similar services

8. What about pawn loans?

You could borrow money from a pawnshop by using one of your valuable items as security against your loan. The pawnbroker will hold the item and lend you an amount that typically is a portion of the resale value of the item, often for a high fee.

If you make payments on this loan, you’ll be able to redeem your item. If you stop making payments, the pawnbroker eventually will sell your item to recover its loss.

But a pawn loan is an expensive way to borrow money. When you average its fees over 12 months, the total equates to an APR of about 200% — or about half the cost of a payday loan.

Pawnbrokers don’t report your payment history to consumer credit agencies, so if you don’t pay off your loan it won’t impact your credit. But you’ll lose the pawned item.

The term length for a pawn loan is 30 days, which gives you some time to get the money together to pay it back.

However, it’s easy to get caught in a cycle of debt with a pawn loan, so it’s better to find other ways to make it through to the next payday.

How to evaluate other quick-cash alternatives

If you need cash now, here are a few ways to determine which method is right for you.

  • Which loan will have the lowest interest? You might have an easier time repaying a loan if it has lower interest. In general, it might be possible to negotiate terms with lower interest rates on loans from family members and friends. If you’re worried about borrowing money from people you know, take a look at our helpful guidelines to make the process less stressful.
  • Can you build your credit? It’s better to build your credit before you get a loan, but if that’s not possible, getting a loan from an institution that will help you simultaneously build your credit — such as a payday alternative loan from a credit union — could be a good way to get the money you need while also boosting your credit history.
  • Can you repay the loan while meeting its terms? No matter the lender you use, you might be setting yourself up for trouble if you don’t have a plan to repay the loan while meeting its terms. A critical step in understanding which loan is right for you is finding one you can afford.

Turn to family and friends

Friends and family might not always able to lend money, but sometimes they can help in ways that can lessen your expenses. They can let you do your laundry at their place, which can save your costs at the laundromat. Or they can make dinner for you and give you leftovers that will last until payday. Or maybe they can lend you money.

Don’t be afraid to open up to people who are close to you about your financial struggles. It takes a village — and one day you’ll be there for them, too.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 5.950% APR to 14.740% APR (with AutoPay). Variable rates from 5.825% APR to 14.365% APR (with AutoPay). SoFi rate ranges are current as of May 18, 2018, and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.825% APR assumes current 1-month LIBOR rate of 1.90% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 4.99% – 16.24% (4.99% – 16.24% APR) based on applicable terms. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank


Upgrade Bank Disclosures


  • Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.
  • Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

7.73% - 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
5.83% - 14.74%1$5,000 - $100,000
Check rate nowon SLH's secure site
5.96% - 35.97%*$1,000 - $50,000Visit Upgrade
8.00% - 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% - 29.99%$10,000 - $35,000Visit FreedomPlus
4.99% - 16.24%2$5,000 - $50,000Visit Citizens
15.49% - 34.49%$2,000 - $25,000Visit LendingPoint
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.49% - 18.24%$5,000 - $75,000Visit Earnest
9.95% - 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.