Payday loans, cash advances and short-term loans are different names for the same beast. No matter what a company calls them, they are short-term loans with extremely high interest rates. In theory, payday loans seem positive. If you do not have enough money to pay pressing bills before your next paycheck, you can receive a cash advance that you pay back on your next payday along with fees and interest. However, interest rates for payday loans are astronomical.
APRs represent the interest paid on a full-year loan, but the term of most payday loans is only a matter of weeks. Lenders use this logic to justify excessive APRs, because if you pay back your loan within the typical loan period, those exorbitant rates won't accrue enough to seem excessive. However, an alarming number of borrowers find they cannot pay off their loan within such a short term and therefore resort to rollovers, extensions or renewals, which is when interest rates and additional fees start to build to unmanageable levels.
Unfortunately, some people run into situations where they feel they have no other choice; banks deny their request and they have no friends or family to whom they can turn. If you feel you have no other choice than to take out a payday loan, we urge you to do your research and shop around to find a reputable company that offers the lowest APRs and fees. Keep in mind that these high-interest loans are not designed for planned expenses or frivolous spending.
Many lending companies have received fines or been at the center of lawsuits for illegal lending or harassment. We remove those services from our lineup when underhanded or illegal practices come into light. Our top three services – 100DayLoans, NetLoanUSA and 24/7Loan – are some of the better options if you decide you want a payday loan. For more information on short-term loans and financial advice to help you avoid them, have a look at our articles on Payday Loans. Payday Loan Companies: What to Look For
Before considering a payday loan, you want to learn about the lending company and everything you can about its interest rates, fees and policies for paying off your loan. Another thing to keep in mind is the fact that many states have their own regulations and laws concerning payday loans, and all lending companies are obligated to comply with local laws. Elements such as the loan amount, interest rates and repayment terms vary depending on where you live. Below is the criteria we considered when reviewing payday loan services and the crucial concepts you should know before getting a payday loan.
Loan Features
The main features of a loan are also the most important: the amount, interest rates and fees. Because payday loans are intended to be a short-term financial bridge between paydays, the maximum amount of most payday loans is smaller than some traditional loans. Be aware that most first-time applicants are not approved for the maximum amount available.
As discussed above, the interest rate (APR) represents the interest you would pay over an entire year, but the terms of a payday loan almost never go an entire year. Because the typical term of a payday loan is short and APRs represent the interest on a full-year loan, services often express APRs in terms of cost per $100 borrowed for a 14-day loan. Most payday loan interest rates are higher than other forms of borrowing. Some services advertise potentially low APRs, but this is the exception. Also, some loan services offer decreasing loan rates over time if you have a good payment history.
Some services on our lineup are direct payday loan lenders, while others process your application and then set you up with lenders with whom you complete your contract and from whom you receive your funds. Most services approve applicants with bad credit and approve payday loans with no credit check, but that is often up to the lender.
Ease of Use
Because a payday loan itself can be tricky, the ease of applying for and receiving your funds is something to consider. In evaluating these services, we looked at the design of company websites along with the simplicity of the application processes.
Repayment Terms
The term for payday loans is generally a matter of weeks as opposed to months or years like a traditional loan. This is because a payday loan's purpose is to supplement your finances between normal paychecks. Some services offer longer terms. Keep in mind that the longer you have to repay your loan, the more you'll end up paying in interest and fees.
When payment on your loan is due, the vast majority of payday services automatically debit the checking account into which the service originally deposited your funds. This means that you don't have to worry about processing a payment, but you do need to make sure the funds are in your account to avoid overdraft and late fees. If you can't make your payment when it is due, some services offer an extension. Other services offer a loan rollover, which puts the remainder of your loan onto a new loan contract. Both of these options may come with additional fees and commitments to the lender, and by extending the length of your loan, these options increase the amount of interest you'll end up paying, so make sure you understand exactly what you are agreeing to before you accept an extension or rollover.
Help & Support
Reliable customer support is crucial in case you run into any issues with your loan, especially if you can't make your payment and need to know your options. Most services offer a couple of ways to contact customer service. With most services, you can reach a representative by telephone or by completing an online email form. Some services offer live chat as well.
Payday loans are a risky choice because of the high interest rate and the short time period you have to pay them back. We recommend avoiding payday loans. But if you have no other option, at least make sure that you're well educated on payday loans and only agree to interest rates you can handle and terms with which you can comply.