It’s happened to everyone at some point or another. You think you have enough cash to cover your bills, you open your account, and you see less money than you thought you had. We’ve all had a sudden fine or unexpected bill catch us by surprise — and it’s normal to panic if you think you can’t cover the expense. If you’re desperate for cash, you might consider taking out a payday loan. Unfortunately, you might not know just how costly taking out a payday loan can be until it’s too late.
Today, we’re giving you a crash course on payday loans and payday loan centers. We’ll show you how payday loans work and why they aren’t the best solution for quick cash. Finally, we’ll show you what to look for in a payday loan alternative and how you can get an Instacash advance from MoneyLion.
What are Payday Loans?
A payday loan is a very short-term loan for a small amount of money. Most people who take out payday loans do so when they need a quick injection of cash to cover an emergency expense. Auto repair bills following an accident, a parking ticket or fine, or a looming credit card payment can all drive consumers toward a payday loan.
The loan’s name comes from the idea that you should only take the loan out until your next “payday,” when you have the cash to repay what you owe.
There is no set definition of a payday loan, but most feature these common characteristics:
- Come from a lender who doesn’t care about your personal information or whether you have steady income
- Have a very short term (usually two weeks or less)
- When it comes time to repay the loan, the lender expects it in full
- Very high interest rates (more on those in a minute)
- Nondescript, high fees or service charges
- The option to “rollover” a loan by paying only the fees and interest you on the repayment due date
Payday loans get a bad rap because they often have very high interest rates. Payday loans often have interest rates of 400% per year or more. This means that your loan accumulates interest much faster than any other type of loan on the market.
Many people who take out payday loans underestimate exactly how much their loan will cost them and cannot pay them back on the due date. If you take out a payday loan and cannot repay it on the due date, you must “rollover” the loan, allowing the lender to continue collecting interest.
Data from the Consumer Financial Protection Bureau estimates that 80% of people who take out a payday loan roll their loan over at least one time. Default rates on payday loans are also high — about 20% of loan borrowers default. This number jumps to 50% for payday loans issued online.
How Do Payday Loans Work?
When you take out a payday loan, your lender will ask for a check or authorization to your bank account. This gives the lender a way to pay back your loan if you don’t pay back what you borrow. You’ll need to write a check or authorize a hold for what you borrow plus any fees. Then, your lender will give you the money you need and tell you the terms of repayment.
When your loan is due, you’ll return to the lender and pay what you owe. You’ll pay back the original amount, any interest you accumulated, and any fees the lender charges. If you cannot repay the entire amount of what you owe, your lender might allow you to roll the loan over and only pay your interest and fees. Some states prohibit rollovers while others limit you to one rollover per loan. If you don’t rollover and you don’t pay your loan, the lender cashes the check or takes what you owe out of your bank account.
Let’s look at an example. Say you need to borrow $500. You head to a payday loan center and request a loan. The lender tells you that you’ll pay a $50 fee to take out the loan. Your loan will also accumulate interest at a 400% annual percentage rate (APR).
You accept the loan, authorize the lender to access your bank account, and get your money. 14 days later, you must repay the loan. You pay back the original $500, plus a $50 fee and about $77 in interest. In total, you pay $627 to the lender. The lender then releases the hold on your bank account.
You should think long and hard before you take out a payday loan. Default rates are high, and you will almost always end up paying much more for your loan when you take a payday loan over another type of loan. The Federal Trade Commission encourages anyone thinking about taking out a payday loan to ask themselves these questions before they sign:
- Can I get a personal loan from a bank or credit union to cover this expense?
- Can I borrow money from a friend or family member to cover this expense?
- Can I contact my creditor and ask for more time to pay my bills?
- Can I put this expense on a credit card?
- Do I have any savings that can go towards covering this bill?
Before you take a payday loan, know that there are alternatives to payday loans, including 0% APR Instacash from MoneyLion. If you still think you must take a payday loan, ask the lender the following questions:
- What is the APR on my loan?
- What are the fees on my loan?
- When do I need to repay the loan?
- What happens if I can’t repay the loan on the due date?
What to Look for in a Payday Loan Alternative
Payday loans offer a predatory and expensive way to borrow a small amount of money for a very short period of time. You should explore all of your alternatives before you take out a payday loan. Here’s what to look for in a payday loan alternative.
One of the worst things about payday loans is that they always come along with very high interest rates. You might pay well over 400% APR to borrow money when you take out a loan with a payday lender. These high rates can make it very difficult to pay back your loan on-time, causing many people who take out a payday loan to rollover. When you consider loan alternatives, look for one with a low interest rate. Like 0% APR Instacash cash advances from MoneyLion.
Low or No Fees
In addition to high interest rates, many payday loan providers also charge you a flat fee just to take out a loan. Maximum flat-rate fees can vary by state but may cost you anywhere from $20 to $75.
Like high interest rates, fees can make you more likely to default or rollover your loan. When you consider loan alternatives, look for banks and lenders who offer cash with low or no fees.
Quick Signups and Instant Deposits
One of the main reasons why people go to payday lenders is because they offer cash almost instantly. If you have an unexpected bill that you need to pay, you should look for a bank or lender who offers quick signups. Thankfully, these payday lenders aren’t the only places where you can get money quickly. Ask banks and lenders how long the signup period is before you make a commitment or open an account.
You should also look for a bank or lender who offers direct deposits into your account. This allows you to get your money faster, as you won’t need to schedule in a trip to the bank. MoneyLion offers instant cash advance deposits in seconds.
No Impact on Your Credit Score
Some banks and lenders require a “hard check” on your credit before they give you cash. A hard check gives lenders access to your credit report but also temporarily lowers your score. This can set you back if you’re trying to raise or maintain your credit. Look for banks and lenders who don’t do hard checks on your credit when you borrow money.
How to Get an Instacash Cash Advance from MoneyLion
Do you need quick cash to cover an expense until your next paycheck arrives? Instacash cash advances from MoneyLion give you access to your next check a little early. Even better, Instacash cash advances have 0% APR. Here’s how to sign up for MoneyLion and take advantage of Instacash advances up to $250.
Open a MoneyLion Checking Account
Head over to the Google Play or Apple App store and download the app. Input your phone number and follow the in-app instructions to open your account.
Apply for Instacash with No Credit Check
You can qualify for Instacash by linking your primary checking account or by joining Credit Builder Plus. No credit check either way!
You can also increase your available cash advance amount by linking your direct deposit through the MoneyLion app — just follow the steps provided. If you have trouble linking your direct deposit through the app, you can also link your direct deposit through your company’s HR website.
Click On The “Finances” Tab
In the MoneyLion app, click on the tab labeled “Finances.” You should see it at the bottom of the screen. Then, click on the button that says “Instacash” to access no-interest cash advances.
Choose How Much Money You Need
Depending on how much money you have coming in, you can get up to $250 in Instacash advances — deposited directly into your account. Choose how much money you need and confirm your cash advance transaction.
Enjoy Your Cash
After you confirm the transaction, you’ll receive the cash in your checking account. There are no limits on how you can use this money. On your next payday, MoneyLion will pay back what you borrow from your check. And you’ll pay no interest!
Getting Cash Safely
No matter how sticky of a situation you’re in, you shouldn’t take a payday advance loan. These expensive loans can get you into an even deeper hole of debt. Instead, look for a much more affordable alternative — like a 0% APR Instacash deposit from MoneyLion. You’ll save both stress and money while you cover your unexpected expenses.
Are you ready to take advantage of interest-free cash advances and everything MoneyLion has to offer? Download the app from the Google Play or Apple App store and set up an account — your future finances will thank you.
MoneyLion Checking Account provided by, and MoneyLion Visa® Debit Card issued by, Lincoln Savings Bank, Member FDIC. Terms and conditions apply.
Current Credit Builder Plus membership required for Credit Builder Plus loan eligibility; the $19.99 monthly fee will be withdrawn from your linked bank account. All loans with an Annual Percentage Rate of 5.99% are made by either exempt or state-licensed subsidiaries of MoneyLion Inc. The Credit Builder Plus loan may, at lender’s discretion, require a portion of the loan proceeds to be deposited into a reserve account managed by ML Wealth, LLC and held by Drivewealth LLC, member SIPC and FINRA. The funds in this account will be placed into a money market cash management or FDIC bank sweep vehicle, and may generate interest at prevailing market rates. You will not be able to access the portion of your loan proceeds held in the credit reserve account until you have paid off your loan, and so long as your Credit Builder Plus membership payments are current. If you default on your loan, your credit reserve account may be liquidated by the lender to partially or fully satisfy your outstanding indebtedness. May not be available in all states.Credit Reserve Accounts Are Not FDIC Insured • No Bank Guarantee • Investments May Lose Value. For important information and disclaimers relating to the MoneyLion Credit Reserve Account, see Investment Account FAQs and FORM ADV.
A Credit Builder Plus loan may or may not improve your credit score. Credit scores are the result of your personal credit practices.
Cash advance requires current membership in Credit Builder Plus ($19.99 monthly fee) or Instacash with Banking ($9.99 monthly fee) membership programs. Instacash with Banking monthly fee is waived for members who connect and maintain recurring eligible direct deposits into their MoneyLion Checking Accounts. All Credit Builder Plus and Instacash with Banking members are automatically eligible to access either $25 or $50 of cash advance, depending on creditworthiness. Members can increase their cash advance limit to up to $250 by connecting and maintaining recurring eligible direct deposits into their MoneyLion Checking Accounts and after up to three consecutive direct deposits have cleared, or at MoneyLion’s discretion. See Membership Agreement and Cash Advance FAQs for more information.