Payday Loans Review
Why Use Payday Loans?
At Top Ten Reviews we’ve been reviewing and researching payday loans for over 10 years. Our reviewers monitor the latest industry trends and regulations to ensure that our reviews stay up to date. For our most recent reviews we considered 20 different lenders before choosing these 10 lenders.
To create our lineup, we vetted these payday lenders to find those that offer services in at least 20 states and have been active for at least five years. The lenders in this buying guide all offer the option to apply online, and many have stores you can find through the lender’s website. Each of the lenders on our lineup is a direct lender, there are no brokers.
Payday loans are highly regulated. These loans are only legal in 32 states and each state has different restrictions on the total amount, interest and length of the loans. For the purposes of this review we included lenders whose APRs fell within the national average range, but know that rates can be higher or lower depending on the state you live in.
Best for Online Payday Loans: LendUp
While applying for a payday loan online is simple and can help you avoid any stigma associated with going into a store, know that all online payday loans aren’t equal. Many online payday day loans are brokers that sell your information to other lenders, resulting a flood of calls and offers. When looking for an online lender, seek a direct lender that provides the loans themselves. Check the rates to see if they compare with the rates offered by in-store loans.
Best for Extending Loans: LendUp
If you find yourself unable to repay your loan in the original time period, you may need to get an extension on your loan. Lenders like LendUp let you extend your loan rather than taking out another loan to pay off the first loan, which is often referred to as rolling over the loan. Rolling over payday loans is much costlier than simply extending your loan, so where possible look for a way to extend the terms of your original loan.
Best for Flexible Terms: Rise
The standard payday loan has a term of 14 days, but some lenders, like Rise, offer longer-term loans. Avoid installment loans, which offer larger amounts but have the same cost as a payday loan. If you need small amount of cash for an emergency, try and find a lender who offers flexible terms and no prepayment penalties.
Best for Storefront Loans: Check Into Cash
Getting a loan from a brick-and-mortar store can offer advantages over online payday loans, such as lower rates and in-person customer service. Store-front lenders like Check Into Cash also often offer other services such as check cashing, title loans, installment loans and lines of credit. Payday loan stores are numerous, and each lender’s website has tools to help you find the one nearest to you.
Best for Unemployed Payday Loans: Check ‘n Go
If you’re unemployed but still need a payday loan, you may still be able to get one from lenders like Check 'n Go, provided you have another source of income and can offer proof of that income to the lender. Many lenders allow you to use Social Security or Disability benefits to borrow. Additionally, if you are self-employed, work freelance or contract you may also be able to take out a payday loan.
Proceed with Caution
Since the payday loan industry is highly regulated, it’s not uncommon for even the most reputable of lenders to have lawsuits or regulatory fines in their pasts. Mergers and acquisitions are also common, so if you take out a loan, check periodically to see if your loan is still owned by the company you originally borrowed from. Make sure you stay current on your payments; payday lenders make frequent use of collection companies to collect delinquent loans.
This is one of the biggest risks of taking out a payday loan. If you can’t pay off the loan you may have to roll over that loan by taking out another loan to pay it off. This can get expensive fast and is how these lenders trap you in a debt cycle. The specifics of rolling over a loan depend on the state you live in. Some states don’t allow it at all, and some require some percentage of the original loan be paid off when you roll over. Some states also have cooling off periods or other restrictions on how many payday loans you can borrow at once. In general, you can expect to pay an additional fee to roll over the loan, and it’s possible for those fees to cost you more than the original loan itself.
How Do I Apply for a Payday Loan?
A payday loan is often used as a cash advance on your paycheck. Payday lenders add a finance charge to the loan when you sign up for one, and you’ll know the exact amount you’ll need to pay back. The average service fee is $15 per $100 borrowed, but it varies with the lender and the state you live in. So if you need a $300 cash advance loan, you’ll need to pay the lender $345 when it comes due.
Unlike most other loans, a payday loan is payed off all at once. You’ll know the full amount when you sign up. The finance charge acts as the interest on this loan. When you see rates quoted, know that those rates are extrapolated over an entire year. But even though these are short term loans, you’ll still be paying a premium.
How you apply and repay depends on whether you apply online or in person.
To apply for a payday loan at a store you’ll need to meet the minimum requirements for the lender which typically include:
- Proof of employment or income
- Being at least 18 years of age
- Having a valid ID.
- Some lenders may have additional requirements such as a minimum amount of income. Requirements vary by state.
When you’re approved, you’ll sign a check for the loan amount and finance charge, post-dated to the end of the term. So if you’ve gotten a loan for $300 with a $45 finance charge, you’ll write a check for $345 post-dated two weeks from the day you sign up. When those two-weeks are over, the lender will deposit your check.
The requirements for applying for an online payday loan are similar to a storefront loan. You’ll need:
- A steady source of income
- A valid Social Security Number or Individual Taxpayer Identification Number
- An active checking account
- An active e-mail address.
Once your application is approved, your loan will either be directly deposited into your bank account (which usually takes one business day, or in some cases you may be able to opt for a prepaid debit card. If you apply online at a lender that also has stores, you can pick up your money from one of its stores.
Payday Loan APRs
Unlike a traditional loan, with a payday loan, you know how much you’ll pay upfront. Payday lenders apply a service charge to each loan. The current industry average is $15 per $100, which would be an APR of 391% if extrapolated over an entire year. So even though these loans are for a short period of time (usually 14 days), they are still more expensive than credit cards and other types of loans. The average APR on a credit card is around 20%.
Think of it this way, if the 391% APR on a payday loan amounts to $15 over a two-week period, a 20% APR amounts to an $0.80 fee on that same amount. So you can see that payday loans are an expensive option.
In 18 states, these loans are illegal. In the remaining 32 states where payday loans are legal, rates and the amount you can borrow vary depending on the state you live in.
What to Know When Applying
Here are some other things to watch out for when considering a payday loan.
- Look for Direct Lenders: A direct lender administers the loan themselves, as opposed to a broker who uses your information to find a lender willing to give you a loan. Brokers tend to be more expensive, are less secure and tend to be more persistent with solicitations.
- Same Day or Instant Approval: One of the main appeals of a payday loan is the ability to get quick cash. Signing up for a loan in a store will give you immediate cash, and an online lender will usually deposit your cash in one business day at the latest.
- Payday Loans for Bad Credit: A credit check isn’t involved in applying for a payday loan, and repayment isn’t reported to any of the main credit agencies. These loans do nothing to build credit, but failure to pay them back can result in the loan being sent to a collection agency, which does have a negative impact on your credit.
- Lenders on Tribal Lands: In recent years, several lenders have found a way to skirt laws restricting predatory lending by incorporating on Indian reservations. These are typically online payday lenders, and they charge high rates. If you use an online lender, check where they are based.
- Watch Out for Overdrafts: Since the payday lender will have either a post-dated check or access to your bank account, the company will deposit the check or withdraw money from your account when the loan comes due. The lender will do this even if you don’t have enough in your accounts to cover the amount, which can lead to overdraft fees. If you don’t have enough to pay back your loan, it’s very important to contact the lender and work with them to either work out an extension or a payment plan. We don’t recommend rolling over a payday loan by taking out another one to pay it, but even that may be preferable to paying repeated overdraft fees.
Payday Loan Alternatives
Before getting a payday loan, we recommend exploring alternatives. While payday loans bill themselves as being for emergencies, the vast majority of people use them for day-to-day expenses. Because of high interest rates, using these loans excessively can result in having to roll them over by taking out a new loan to pay off the existing loans. If you find yourself in one of the following situations where you’re considering using a payday loan to pay regular bills, we recommend exploring some of these options.
If You Have Bad Credit: One of the main reasons people turn to payday loans is that there is no credit check involved. So people with low credit scores often find themselves with few options when they need a loan, especially since credit is often a requirement to get a personal loan.
Credit Unions: Local credit unions often have less strict credit requirements than large banks. A personal loan from a credit union may have a short term, but it will have a lower interest rate.
Finding a Cosigner: You may want to find a friend or relative with good credit to cosign with you. Having a cosigner will give you better terms and a lower rate. Remember that you’re not the only one on the hook for the loan though, if you fail to pay it back, your cosigner will be responsible for the debt and you could put their credit score at risk.
If You Need an Advance On Your Next Paycheck: One reason you may consider a payday loan is you need extra money because of a smaller paycheck. If you depend on tips, work as a freelancer or work part-time, your pay fluctuates from paycheck to paycheck, and if you have a low week, you may need to find a way to get cash until your next paycheck.
Even: This app averages your paychecks and ensures that you always have a standard amount in your bank account.
Activehours: This relatively new app gives you immediate access to money after you complete a shift.
If You Need to Roll Over Loans: Payday loans are a temporary solution, and are not meant to be long-term. If you find yourself in a situation where you need to take out another payday loan to pay off a previous one, we recommend exploring other options to improve your financial health.
Credit Counseling: A credit counseling agency can help you set up a budget and will work with you to negotiate lower payments. Many will enroll you in a debt management plan, which will combine your debts into a single payment you make to the credit counseling agency.
Alternatives to Avoid
Not all payday loan alternatives are created equal, and some carry just as many risks as your regular cash advance payday loan. Below are some examples of alternatives to watch out for.
Title Loans: A title loan operates on a similar principal to payday loans. Immediate cash for those with bad credit. With a title loan you sign over the title of your car as collateral. If you don’t pay back the loan, the lender seizes your car. Title loans have high APRs and a variety of fees.
No Credit Check Loans: These loans, also called payday installment loans or no-credit-check installment loans, are very similar to payday loans, but have longer terms. You may be able to borrow more and will have more time to pay it back, but the APRs are comparable to payday loans, so they can be more expensive in the long term.
Payday loans offer a way for those with low credit to get quick access to cash to pay for unexpected expenses. It’s important to know that these loans have high interest rates and can result in overdrafts and damage to your credit score if you’re not careful. While we recommend avoiding payday loans wherever possible, we’ve found lenders that combine availability, reliability and industry average rates so you can make an informed choice if you do need to find a payday lender.