Life happens fast. That means that sometimes you need access to cash even faster. For example, when your utility bills hike up in the winter, or you need a new set of tires. In situations like these, you don’t have much time to waste finding money to pay for the expense.
If you’re looking to get access to cash quickly, your first thought may be “how can I get a payday loan instantly”. While payday loans are a good way to get the money you need quickly, they can be the first step down a dangerous path of debt.
Educating yourself on the typical terms you get from a payday lender is essential. Then you can decide whether it is the best option for you.
According to Pew Trusts, you’re not the only person who considers a payday loan to solve your problem. Twelve million Americans take out payday loans each year, and the average payday loan borrower’s salary is $30,000. The research shows that payday loans are used most commonly for regular expenses like rent and utilities than emergency expenses.
Unfortunately, they’re not the best option for borrowers, and they’re not even allowed in some states.
BrightUp is dedicated to creating and sharing helpful financial education and resources to help you feel confident and make the best financial decisions for you. So before you apply to get a loan online instantly, we’re taking the fine print and making it bold.
What is a Payday Loan?
The Consumer Finance Protection Bureau defines payday loans as a cash advance that helps you cover a short-term expense if you don’t have enough money before your next paycheck. It’s a very short-term loan, usually no more than $500. And while payday loans are easy to find, they also come with hidden fees and extremely high interest rates.
When we say high interest, we mean it. The average interest rate is 391%, and some can be up to 600%!
The payday loan requires the borrower to repay the loan with a single payment on their next payday. To get an instant loan, the borrower writes a check so the lender can receive immediate payment on the next payday. Sometimes if you can’t pay, the lender will roll over the loan, snowballing the interest and amount owed.
Qualifying for a Payday Loan
The qualifications for a payday loan are fairly minimal. That’s what makes them so appealing to many. While details vary from lender to lender, there are four basic requirements:
- You must be at least 18 years of age
- You must have an active checking account
- Have some form of identification
- Provide proof of income
When applying for a payday loan, most lenders don’t even use a hard inquiry to your credit report to make sure you can pay back the loan. Online loans can be approved in as little as 15 minutes.
If you’re thinking it’s too good to be true, you’d be right.
Other Terms for Payday Loans
Payday loan companies operate under a wide variety of titles. As a result, how they lend and collect money might be different, too. But make no mistake: they’re still likely to have unfavorable terms for the borrowers.
Other terms for payday loans could include:
- Cash advance
- Short-term loan
- Payday advance
- Fast cash or fast loan
- Bad credit loan
- Paycheck advance
Consumers beware when dealing with any company that offers cash fast with minimal information. These loans can be considered predatory lending. They don’t consider the borrower’s ability to repay and can create a debt trap for consumers.
Pros and Cons of Payday Loans
The ease of acquiring a loan online instantly can be pretty appealing. Payday loans have a few attractive benefits when you’re really in a pinch – for example, you can get a loan instantly online. However, for most individuals, the cons far outweigh the pros.
Pros of Payday Loans:
- Instant access to cash
- It doesn’t depend on a good credit score
- Only requires verifiable income
- Easy application process
Cons of Payday Loans:
- High interest rates and additional fees
- Short repayment terms
- Faster reporting to collection agencies
In May 2021, at the height of the COVID-19 pandemic, Bloomberg reported on the booming payday lender business. The article followed Jamie Johnson, a Detroit, Michigan resident laid off at the beginning of the pandemic and faced a $5,000 debt with a 589% interest rate. He had to save $965 from his unemployment insurance checks every week to pay back his debt.
Unfortunately, for so many American citizens in the same situation, the cons far outweighed the pros.
Sample of U.S. Payday Interest Rates
State Interest Rate
While some states allow extremely high interest rates for payday loans, there are a growing number of states who cap rates to help consumers avoid the payday loan debt trap:
- Arizona
- Arkansas
- Colorado
- Connecticut
- Delaware
- Georgia
- Illinois
- Maryland
- Massachusetts
- Montana
- Nebraska
- New Hampshire
- New Jersey
- New York
- North Carolina
- Pennsylvania
- South Dakota
- Vermont
- Washington D.C.
- West Virginia
The rest of the states have limited or no protections to payday loan interest rates.
How to Know if a Payday Loan is Right for You
At BrightUp, we understand that not everyone has the credit or meets the criteria necessary for a traditional personal loan when you need money fast. If you have subprime credit and need cash quickly, you can get a payday loan instantly. However, there are more opportunities for you to borrow yourself into an even worse financial situation.
Learn more about getting cash quickly when you can’t get a personal loan.
If you’re still interested in seeking a payday loan, do the math first. Estimate how much you need to borrow, how much the payback would be, and if you can afford to pay it off with your next paycheck. Also, make sure you’re considering what other expenses are coming up.
Suppose you rolled over a nail in your parking garage. Despite your shop’s best efforts, they couldn’t patch the hole, and you’ll have to pay for a new tire. After the tire’s cost and the mechanic’s labor, your bill is $450.
Unfortunately, you already spent most of your paycheck on groceries and utilities. A payday loan may look appealing to get your car back quickly, but consider what it will really cost you.
In some states, payday loans are not legal by state law, or because the payday lenders won’t do business at the interest rate and fee amounts permitted in those states. Short-term loan lenders seek out the most disadvantaged consumers to earn as much in fees and interest as possible. Pew’s survey found that there are five main groups of payday loan borrowers: those without a college degree, home renters, African Americans, those earning less than $40,000 a year, and those separated or divorced.
If you believe you can responsibly pay off the payday loan, can afford to pay the interest and fees, go for it. Just shop around first.
Finding a Trustworthy Payday Loan
A legitimate payday lender must have a license to operate and lend money in your state. You won’t want to do business with a company that operates without a legitimate license. If it’s not legal in your state, it’s unlikely they’ll follow state regulations designed to protect you.
When finding a payday lender, you can look online for online lenders or find a storefront lender local to your hometown. Is in-person better than online? Not necessarily.
Online Payday Lenders
Online payday lenders have quickly become the most common source for payday loans, thanks to the rise of managing finances digitally. A simple search for an online payday lender will give you over 4 million results on Google. So how do you know if the lender is trustworthy?
Here are three things to look for:
- Website security: Is your information at risk of being stolen?
- State licensure: Can the lender operate in your state?
- Responsible terms: Are the terms predatory to consumers?
When seeking a reliable payday lender, it’s crucial to determine the safety and security of the lender, especially if it’s an online application. The easiest way to ensure the website is secure is by checking to see if there’s an “HTTPS” before the web address. The “S” indicates that the server that hosts the website is secure, and your personal information is less likely to be picked up by scammers.
Another way to know if they’re a reputable lender is to ensure they have the appropriate licensure. Unfortunately, not every online lending network can do business in every state, so search the website for confirmation that they can lend in your state.
While you’re searching in the fine print, review their typical terms for borrowing and repayment. If their interest rates are in triple digits, it’s probably not a great option.
Storefront Payday Lenders
There’s likely a payday lender closer to your work or home than you realize. In fact, as of 2017, there were 14,348 payday loan storefronts in the United States. That’s more payday lenders than there are McDonald’s!
The great thing about using a storefront payday lender is that you can be sure they are licensed to operate in your state and will abide by its regulations.
The thing about getting a payday loan from a storefront lender is that you’ll have to return to the store when it’s time to repay. This isn’t always the most convenient scenario for busy workers. If you fail to repay the loan on time, the lender will take the postdated check you wrote and process the check on your behalf.
Safer Alternatives to Payday Loans
While it may seem like the most convenient option at the time, there are plenty of other ways to get access to cash quickly in a pinch. While some options can be equally predatory, there are a few that are more appealing to consumers with subprime credit in a pinch.
- Local nonprofit or charity: Many community services organizations offer funding sources to help cover essentials.
- Credit union loans: many credit unions offer a payday alternative loan with a significantly lower interest rate and longer repayment timeline.
- Family loan: Borrow from a family member or friend without interest.
- Cash advance apps: These apps charge low or no fees or interest.
Explore all your options to see if one of these loans may work better for your financial position. If you have the time, you can work to improve your credit score, find a cosigner, or look into a secured loan.
Learn more about the steps to take to get a loan with bad credit.
Compassionate Capital
While it may seem like there’s nobody you can trust to get a payday loan instantly, there are lenders who put the financial wellness of borrowers first. Compassionate capital looks beyond an individual’s credit score to expand lower-cost capital access. This is one of the pillars of BrightUp’s financial wellness benefits.
Introducing the BrightUp Emergency Loan
BrightUp offers an Emergency Loan that provides the same convenience as a payday loan, without the unreasonable terms. For employees who have access to our financial wellness benefits, there is no minimum credit score required to access up to two weeks of pay in advance.
While other payday lenders would pair the advance with high interest rates and a 2-week repayment period, we offer a single-digit APR and a 2-year repayment period. The only requirement is that you have been in good standing with your employer for at least 12 months.
Is there a better option? Not that we know of. That’s why we created it!
Prevent Financial Emergencies in the Future
In addition to connecting workers and their families with accessible funding for emergencies, we want to empower recipients with the planning tools and advice they need to learn how to save for emergencies in the future.
Most financial experts recommend saving between three and six months worth of your living expenses. If that feels like a daunting task, start with a smaller goal of at least $500 to save, which usually covers those small emergency expenses that can send someone into a debt trap.
The BrightUp app gives employees the ability to track and analyze spending to identify areas of improvement in their budget. It also helps set saving goals with tools that automate savings and visualize your progress. Save for a Goal empowers you by automating your savings to meet milestones and time-based goals–whether it’s a specific purchase or preparing for a rainy day, college, or retirement.
Learn more about our variety of financial planning tools.
Your employees deserve to be financially healthy and holistically wealthy. Our compassionate capital and financial management tools can help them get there.
Talk to your employer about signing up for financial wellness benefits through BrightUp. Then, watch you and your coworkers take another step towards financial freedom.
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