You made rent by the skin of your teeth, but now your car broke down. You don’t have much in the bank and can’t use a credit credit. What are you supposed to do? A payday loan might be your only option.

What Are Payday Loans?

Payday loans act as a cash advance against pending income like a paycheck or social security check. The term is short, usually having to be paid back within days or weeks. The average rate for most loans is $30 for every $100 borrowed, making them expensive. They’re for people who need money right away. Life happens and sometimes you need cash that you don’t have. The high costs are due to the fact that they will not run your credit. Often, you’ll only need a bank account. They allow people without credit cards or emergency funds access to quick cash.

Payday Loan Features:

  • Short term
  • High interest
  • Low loan amount ($500 or less)
  • No credit check necessary
  • Paid back in full

When To Use Payday Loans

You need to pay the dentist but don’t want to miss a car payment. Your paycheck is going to clear at the end of the week but you need the funds today. That’s when to use a payday loan. You’ll have the income by the time the loan is due back.

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How To Use Payday Loans

Most payday lenders use the postdated check method. Say you’re taking out a loan for $200 on June 3rd with a $60 fee. You’ll give the lender a check for $260 dated for June 18th (or date agreed upon). When the date comes, you can either pay the lender back directly or let them cash the postdated check. Some lenders are online, but be prepared to bring a check to a storefront lender.

Check Local Laws

Each state has different “usury laws” that regulate lending terms and rates. Some states, like New York, don’t allow for payday loans. The average APR (annual percentage rate) of a payday loan is 400% but can range much higher (credit cards typically range from 9% to 30%). It pays to check interest rates ahead of time. Familiarize yourself with your state laws. Service members are protected by law and are limited to a 36% interest rate on payday loans.

Alternatives To Payday Loans

  • Ask your employer about an advance.
  • Use bank overdraft protection.
  • Request a cash advance on a credit card.
  • Apply for a small bank loan.
  • Borrow from a loved one.
  • Take from your savings.


Having rainy day money set aside would be great, but everyone’s financial situation is different. Payday loans are for people with bad or no credit who need access to emergency funds. The high fees should deter you from making them a habit. If you find yourself constantly needing money ahead of payday, you might want to monitor your spending habits. Talk to the providers you owe money to and see if can work out a better payment plan. If you really are stuck and need cash right away, then a payday loan might be a quick fix. Defaulting will result in very high fees. Make sure you’ll have the funds available to you when you need to pay it back.