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Our goal here at Credible Operations, Inc., NMLS number 1681276, hereinafter referred to as “Credible”, is to give you the tools and confidence you need to improve your finances. Although we promote products from our partner lenders that reward us for our services, all opinions are our own.

Payday loans seem like a good option when you need money between paychecks, but they come with high fees and can be difficult to repay. (Shutterstock)

Payday loans, sometimes called cash advance loans, are small loans offered by private companies. Borrowers repay these short-term loans with their next paycheck.

Payday loans are often attractive to borrowers with lower credit ratings or who need emergency cash quickly, since many payday loans have low qualifying standards and do not conduct credit checks. You should know that payday loan can be viewed as a form of predatory lending as they often have very high interest rates and many fees. These costs can complicate payday loan repayments and trap you in a cycle of debt.

A bad credit personal loan is a better alternative to a payday loan. Believable makes it easy View your prequalified personal loan rates from different lenders, all in one place.

How do payday loans work?

When you take out a payday loan, you agree to a short repayment period — usually around two weeks. You may be required to write a personal check for the amount you are borrowing plus the company’s financing costs. They also sign an agreement that allows the lender to cash the check by a set date. Alternatively, you can pay back the loan in cash or pay an additional financing fee to roll over the debt to another week.

Some payday lenders allow you to get multiple loans and repayments at the same time.

In most states, payday loans are available online or at brick-and-mortar locations. Payday loans are illegal in the following states and counties:

  • Arizona
  • Arkansas
  • District of Columbia
  • Georgia
  • New Mexico
  • North Carolina

Other states have guidelines that dictate the maximum amount of a payday loan and the minimum repayment terms. Some states have no guidelines or regulations for payday loans. For more information about payday loan regulations in your area of ​​residence, contact your Attorney General’s Office.

How Much Does a Payday Loan Cost?

The cost of a payday loan varies depending on a number of factors such as: B. the rates, fees, and state laws of the payday loan company. Some states have caps on the maximum amount of fees a payday loan company can charge. These fees typically range from $10 to $30 for every $100 you borrow. According to the Consumer Financial Protection Bureau (CFPB), a $15 fee for every $100 borrowed equates to nearly 400% APR.

Payday loan is more expensive than personal loans, or even credit cards. The credit card’s average annual interest rate was 16.17% in February 2022, while a 24-month personal loan had an average annual interest rate of 9.41% Federal Reserve data.

Payday loans can be problematic for people with little income because it is easy to accumulate additional debt. If you don’t repay your original amount, you will be charged interest and a loan fee to renew the debt. You can easily double or triple the amount you have to pay back over several months, which can add up to more than the original amount you borrowed.

APR vs. INTEREST RATE: WHAT IS THE DIFFERENCE?

Does Repaying a Payday Loan Build Credit?

no Payday loans do not help you build credit as they do not work in the same way as a traditional personal loan or credit card. Most payday loan companies don’t report your on-time payments to the credit bureaus, so those payments won’t increase your score.

Additionally, many payday loan companies do not conduct a credit check when you apply, so they do not have access to report your score. However, if you don’t make your payments or make them late, they can send your bill to collection agencies, hurting your credit score.

Alternatives to payday loans

Payday loans are expensive and won’t help you build credit, so you should only consider them as a last resort. If you need money to cover unexpected expenses, here are some better options to consider.

Personal Loans

Personal Loans are a practical option for borrowers with excellent credit ratings and bad credit borrowers equally. While you may pay a higher interest rate if your score isn’t as high, the cost isn’t nearly as high as a payday loan. You can usually earn interest that is significantly lower than a payday loan.

Personal loans can provide funds for an emergency or help you consolidate high-interest debt into a single monthly payment. You can apply for personal loans from your computer or phone, and most lenders will transfer the money straight to your bank account within days. If your score is shaky, you may be able to add a co-signer with good credit or apply for secured credit.

With Credible you can quickly and easily Compare personal loan rates from multiple lenders and it will not affect your credit score.

Ask your bank or savings bank for a small loan

Some banks and credit unions offer small loans to existing customers, even if their credit rating is not optimal. The benefit is that you stay with a company you already know (and hopefully trust). Working with your current bank or credit union also means funds can be deposited into your account much faster than with another lender.

Credit unions and banks may have lower (or no) fees and offer benefits like reduced interest rates when you sign up for automatic payments. A downside is that some banks and credit unions require a good to excellent credit rating to qualify for a loan.

WHERE TO GET A PERSONAL LOAN

Borrow from family or friends

Borrowing money from family or friends can be difficult. If you owe money to someone you care about, it can put a strain on your relationship. You should only borrow money if you can pay it back quickly.

On the plus side, your family and friends don’t check your credit, so your score won’t be affected. But they also won’t report the payments, so you get no benefit from paying off the debt other than maintaining a happy relationship.

If you are borrowing from a family member or friend, consider creating your own contract with repayment terms. Creating a professional agreement can help make both parties feel more comfortable.