Have you considered a payday loan alternative when you’re in desperate need of a loan or cash fast? When you face an unexpected medical bill, car repair, or another emergency and need to get through until the next paycheck, we’ve got you covered. Having funds when you need them can help you build a better financial future.
Here we’ll explain why a payday loan might be the most expensive option for quick money. Learn about what to look for in a payday loan alternative and avoid high fees for access to instant cash.
Table of Contents
What are payday loans?
A payday loan is a short-term loan for a relatively small amount of money. Most people take payday loans for emergency expenses such as unexpected car repairs, fines, or to cover a credit card payment until a paycheck arrives.
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 the loan amount. It’s aimed at people who are in desperate need of a loan.
There is no set definition of a payday loan, but most feature these common characteristics:
- No background checks. Lenders may not check personal information or income.
- Short duration. The loan is short-term, usually two weeks or less.
- Full repayment. The loan usually must be repaid in full when it is due.
- High interest rates. Expect very high interest rates.
- High fees. Payday loans are known for high fees or service charges.
- Rollover options. You can “roll over” a payday loan by paying only the fees and interest you owe on the repayment due date, extending repayment.
If you cannot repay the loan on the due date, you must “roll over” the loan, allowing the lender to continue collecting interest. Many people who take out a payday loan underestimate exactly how much their loan will cost them if they cannot pay it back. Data from the Consumer Financial Protection Bureau estimates that 80% of people who take out a payday loan roll over their loan at least once.
If you have to roll over a payday loan, expect to pay annualized interest up to 400% or more on the initial amount. These loans accumulate interest much faster than any other type of loan on the market, making them a very risky financial move.
How do payday loans work?
When you take a payday loan, first ask for the terms of repayment. It’s worth asking if you have the option to roll over the loan and only pay your interest and fees if you cannot pay the full amount. This depends on state regulations and your individual lender.
There are several different options for payday loans. They usually involve quick repayment and high interest rates.
Payday loan example
Suppose you need to borrow $300. The payday lender tells you that you’ll pay a $50 fee for the loan. Your loan will also accumulate interest at a 450% annual percentage rate, or APR. The loan is due 14 days later.
At that time you’ll need to pay back the original $300, plus a $50 fee and about $52 in interest for a total of $402 on a $300 loan, or 25% more than the original amount — in only two weeks.
You will possibly end up paying much more for a payday loan than another type of loan. Before taking a payday loan, ask yourself these questions:
- Can I get a personal loan from a bank or credit union?
- Can I borrow from a friend, family member, or colleague?
- 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 toward this bill?
While there are better alternatives, if you ultimately need to take out 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 are an expensive way to borrow a small amount of money for a very short period of time. For that reason, almost any payday loan alternative will be a better financial choice. Here’s what to look for in a payday loan alternative.
Interest rates can add up to 25% or more to your loan amounts in just two weeks. Payday loans usually have annual interest rates of up to 400%. These high rates can make it very difficult to pay back your loan on time. If you were struggling for $300, adding $100 to the payback amount two weeks later might make it almost impossible to repay.
When you consider payday loan alternatives, look for one like a 0% APR InstacashSM cash advance from MoneyLion. Instacash requires no hard credit checks and offers initial disbursements from $25 to $100. You can get payment the same day if you pay a turbo delivery fee. The cash advance is repaid from the account that you choose to link and authorize for repayment. High limits and disbursement amounts require a history of direct deposits to the account you chose to link.
Low or no hidden fees
Many payday loan providers also charge a flat fee just to take out a loan. Maximum flat-rate fees can vary by state but may cost anywhere between $20 to $75 or more.
These fees can add significant amounts to your total loan, increasing the likelihood of default or roll over the loan. When you consider payday loan alternatives, look for lenders who offer access to cash with low or no hidden fees, like Instacash.
Quick signups and deposits
One of the main reasons people go to payday lenders is for instant cash as a last resort in emergencies. Fortunately, these payday lenders aren’t the only way to 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 so you won’t need to schedule a trip to the bank. MoneyLion offers instant cash advance deposits in minutes.
6 steps to get an Instacash cash advance
Do you need quick cash to cover an expense until your next paycheck arrives? Instacash cash advances from MoneyLion give you access to cash prior to payday, or your next direct deposit date. Even better, Instacash cash advances have 0% APR. Here’s how to sign up for MoneyLion and take advantage of Instacash cash advances up to $250.
1. Download the MoneyLion app
This can be done on any smartphone or even from your desktop computer.
2. Open a MoneyLion account
Next, you’ll create an account with your email address. Follow the in-app instructions to finish opening your account.
3. Increase your Instacash amount up to $1,000
If you open a RoarMoney accountsm , set up, and receive recurring direct deposits, your available Instacash can increase to up to $1,000. Just follow the steps provided in the MoneyLion app to get started right away.
4. “Instacash” tab
To access Instacash, you’ll find the “Instacash” button under the “My accounts” tab in the MoneyLion app. You should see “Finances” at the bottom of the screen. Just click on the button that says “Instacash” to access no-interest cash advances.
5. Choose how much money you need
With a linked account that has a historical recurring direct deposit, you can get up to a $250 Instacash cash advance limit. If you have a RoarMoney account set up with recurring direct deposits, your cash advance option increases to up to $1,000 — also with 0% APR. This is a way to save money and is a simple, less expensive alternative to a payday loan.
6. Enjoy your cash
The final step is just to confirm the transaction. You’ll receive the cash in your account. You can use the money for whatever you need. On your next payday, with your authorization, MoneyLion will automatically deduct your repayment for Instachash from your direct deposit. You’ll pay no interest, have no hidden fees, and can do it all from your computer or phone.
Payday loans and better alternatives
While a payday loan used to be a last resort, these days there are payday loan alternatives. When you’re in desperate need of a loan but don’t want to ask a friend or family member, or don’t have money in your bank account, Instacash can give you a cash advance for the funds you need instantly. Don’t let high-interest, high-fee loans keep you living from paycheck to paycheck. Use the MoneyLion tools to track spending, save more for emergencies, and create a Safety Net when you need it. There is also the MoneyLion Buy Now, Pay Later feature coming soon to help you get ahead.
How much interest do payday lenders charge?
Payday lenders generally aim to charge between $10 and $15 per $100 borrowed. The annual percentage rates on payday loans is between 391% and 520% or more.
What app can I use to access money within minutes?
You can get a cash advance from the MoneyLion app. Create an account in minutes, link your bank account, and qualify for a 0% APR cash advance of up to $1,000 with recurring direct deposits into your RoarMoney Account. This is a financially smart alternative to payday loans.