A payday loan is a short-term, high-interest loan designed to help you with cash until the next payday. They usually range from a few hundred dollars up to $1,000. Payday loans give you instant access to cash when you need it most. But there’s a catch: These loans have high interest and fees that can trap customers in a cycle of debt.
Because lenders check on current loans, it’s difficult to get two payday loans at once. And it’s not advisable. The Consumer Financial Protection Bureau (CFPB) has put limits in place specifically to prevent lenders from preying on vulnerable borrowers. Below, you’ll find all the details on second payday loans and what you can get instead.
Do payday loans appear on a credit report?
Payday loans don’t appear on credit reports. There are pluses and minuses to this. Payday loans can be appealing to those with lower credit scores because they don’t require hard credit checks. But this also means they won’t report your payments to credit bureaus. Even with consistent on-time payments, your credit score won’t get a boost.
A payday alternative loan (PAL) from a credit union or a “bad-credit personal loan” can be an alternative to payday loans. Both of these options can come with high-interest rates and fees but have the advantage of helping you build credit with on-time payments.
Will lenders know whether I request a second payday loan?
Usually, yes. Unless the lender fails to screen for other loans. One of the guidelines of the CFPB is that all potential borrowers must be screened. Payday lenders aren’t as stringent as traditional lenders, but they still must confirm that a borrower can repay the loan. Some payday lenders do this by asking for a bank account or pay stub information. Many will run a credit check.
Any outstanding payday loans will appear on your credit report. Your chances of being approved for a second are low. Even if the payday lender doesn’t pull your credit report, the lender can still discover an active payday loan through bank statements and deny the second payday loan.
Payday loan lenders big and small must follow certain rules and deny applicants. According to the new CFPB guidelines, any borrower who takes out three payday loans in quick succession must be cut off by the lender for 30 days. In some cases, you must wait a full 24 hours after repaying your previous payday loan before you take out a new one.
Avoiding multiple payday loans
Payday loans are often a last resort for borrowers in desperate need of cash — but they aren’t the only financial tools available to people with poor credit. Asking family or friends for a loan, considering peer-to-peer loans, lending circles, bad credit loans, or a credit card cash advance are all alternatives that don’t carry the same degree of risk.
If you have to take out a payday loan, be sure to pay it back in full on time. Don’t take a loan if you can’t repay it. In the meantime, it’s worth looking into other types of loans or credit cards that can build your credit score to qualify for loans with lower interest.
Don’t become reliant on payday loans
Taking out a payday loan often gets you stuck in a cruel cycle. Payday lenders use predatory policies to take advantage of some of society’s most vulnerable. They come with triple-digit interest rates and high fees, making them difficult to pay back with a single paycheck. They specifically target people who don’t have an alternative.
With a payday loan, your monthly spending allowance will become drastically reduced, and you’ll be forced to take out another payday loan, in turn creating a cycle. Don’t fall into this trap!
Explore payday loan alternatives
Payday lenders don’t have your interests at heart. Short-term loans with high rates and exorbitant fees are beneficial only to the lender. Using them repeatedly can inflict serious consequences on your financial health.
On a typical $300 payday loan, you could end up paying close to $100 in interest and fees. If you take out a payday loan every month, you’ve lost $1,200 a year that could go toward savings or other expenses.
To avoid falling into the cycle of payday loan dependence, proactively building credit and income can prevent further debt. You should always consider safer alternatives before settling for payday loans. Here are a couple of payday loan alternatives.
Even a part-time gig or side hustle can help you earn enough to avoid taking a payday loan. Consider approaching local businesses for part-time work, starting an online shop, or using your skills in another context.
Suppose your side hustle helps you earn an extra $300 a month. If you avoid taking a payday loan, that side hustle is paying $300 a month plus the $100 you’ll save in payday loan interest and fees. You’ll also save the time it takes to get the loan.
You can also sell off extra clothes or other items to bring in extra cash. Go through your closets and garage and find items in good condition that someone else can use. You can sell things in a yard sale or online on eBay or other sites.
Personal loans from banks or credit unions are less expensive than payday loans and offer both higher funding amounts and lower interest rates. You’ll typically need solid credit to qualify. The application process can take weeks, so it may not be your best bet if you need cash fast. But if you plan ahead, a bank loan can create the cushion you need as you build savings.
0% APR introductory credit cards
Signing up for a 0% introductory credit card offer tends to be a faster option. You can get approved as fast as a couple of days. You’ll need to have good credit to qualify for sign-up perks. Make sure you pay off the balance before the 0% introductory period is over or you’ll face back interest and fees.
0% APR cash advance
Many banks, credit unions, and online lenders offer a 0% annual percentage rate (APR) cash advance that functions much like a payday loan but without predatory interest and fees. They may require that you have an account at the institution. Check with your bank about 0% APR cash advances, or search for online lenders with 0% APR cash advance offerings.
As opposed to payday loans, credit-builder loans are specifically designed to help you build your credit score so you can qualify for better offers, like the 0% APR credit card or bank loans mentioned above.
With a credit-builder loan, you make a fixed payment to the lender and then get the funds back at the end of the loan term. If you want to save some cash for the end of the month, this can be a way to make sure you have cash when you need it and build credit.
Summary of why you don’t want a second payday loan
Can I have two payday loans at once? Yes, in rare cases you may be able to get a second payday loan. But that doesn’t mean you should have multiple payday loans. Consider each payday loan a significant expense — with interest and a fee of $50 to $150 or more. Think of what else you could do with that money. Then start planning now with a credit-builder loan or other alternatives so you have more options the next time you think you’ll need a payday loan.
How many payday loans can you have at one time?
Payday lenders should not provide more than one payday loan at a given time. While it may be possible to get multiple payday loans or even two payday loans at once if the payday lender doesn’t check, it can make it harder to pay back, and you’ll face high fees.
Can you go to jail for not repaying a payday loan?
No, you won’t go to jail for not repaying a payday loan. But if you don’t repay a payday loan, you can be sued and required to appear in court. If you don’t appear in court, you could be arrested.
Do payday loans hurt your credit?
Payday loans usually don’t hurt your credit score, as they are not reported to the credit bureaus. But if you default on the payday loan, the lender may report it to the credit bureaus, and then it can hurt your credit score.