If you’ve ever been in a situation where you desperately needed money, you know firsthand just how stressful it can be to find funds. An unexpected home repair bill, parking ticket, or final notice on a credit card can send even the most prepared budgeter through a loop. You may have even considered taking out a “quick loan” or payday loan to cover your expenses.
From the outside, taking out a payday loan might not seem like a big deal. After all, you’re just borrowing the money until your next check comes in — right? Unfortunately, you might not realize just how costly these loans can be until it’s too late.
Today, we’re giving you an inside look at quick loans, often also called “payday loans.” We’ll show you what to expect if you choose to take out a loan and just how much money they can cost you. We’ll also give you some tips and tricks that you can use to get a loan fast and choose a safer alternative to predatory payday loans.
What is a Quick Loan?
A quick loan (more commonly called a “payday loan”) is a very short-term loan with a high interest rate. You can get a payday loan from an online lender or an in-person payday loan provider, but you usually cannot get one from a bank or credit union.
In 2015, the Consumer Financial Protection Bureau found that there were almost 16,000 payday lenders operating in the United States. Many of these lenders also offer other financial services, like access to pawnbrokers or check cashing.
There is no set definition of a payday loan. However, the Consumer Financial Protection Bureau says that most payday loans have the following characteristics:
- A very high interest rate
- Nondescript, high fees (“administrative fee,” etc.)
- A very short term (for example, the lender expects their money back within two weeks instead of a year)
- A small principal balance (usually less than $500)
- Comes from a lender who expects you to pay the loan back in full instead of in installments
- The ability to “rollover” your loan and pay only the interest and fees on the due date (more on that in a bit)
Payday loans get such a bad rap because they have very high interest rates. Depending on your state, you might pay over 400% in an annual percentage rate (APR) when you take out a payday loan. Some states even allow payday lenders to charge almost 800% in interest per year. In addition to high interest rates, these loans also usually have flat-rate service fees that you need to pay no matter how much you borrow. These two factors make it very difficult for people who take out these loans to pay them back.
If you cannot pay back your payday loan on the date it’s due, you may have the option to roll the loan over. When you roll over a payday loan, you only pay the interest and the fees on your loan. The lender then gives you a new due date, and your loan accumulates interest and fees again at the same rate.
Rollovers can quickly trap you in a cycle of accumulating interest and minimum payments. If you think that you won’t have any trouble paying back your loan, you’re in the minority. According to data from the Consumer Financial Protection Bureau, 80% of people who take out a payday loan rollover at least once.
Let’s look at an example of just how quickly a payday loan can accumulate interest by comparing it to a personal loan from a bank.
Imagine that you need $500 to cover an unexpected home repair bill. You go to your bank and take out a personal loan for $500 at 12% APR. You and your bank agree that you’ll repay the loan in monthly installments over the course of a year. Each month, you pay your lender a premium of $44.42. Some of that money goes towards paying down your principal, while the rest goes towards accumulating interest. Twelve months later, your loan matures, and your lender closes your account. In total, you pay $33.09 in interest to borrow $500.
Now let’s see what would happen if you took the same loan out with a payday lender.
Imagine that you need $500, so you head to your local payday lender. The lender agrees to give you $500 at an interest rate of 400% per year. There’s also a $50 fee to take out the loan, which is due when you repay what you owe. Instead of making monthly payments, the lender tells you that you must pay the entire principal, interest, and fees on the due date two weeks from now. You take the money and leave your banking details or a check with the lender.
Two weeks later, you return to pay down what you owe. While you had the loan out, your balance rose to $576.92 due to interest accumulation. You also owe the lender $50 for the service fee. In total, you pay $626.92 to your lender, who releases your check or banking information. This means that you paid $126.92 to borrow $500 — about 385% more than you would have if you took the personal loan.
Why would anyone take out a payday loan? Payday loans often target disenfranchised populations and those who are desperate for quick cash. Low-income individuals and members of the military are often the targets of payday lenders. The people who take out payday loans often think that they have no other option to get a loan quickly. A low credit score or past financial mistakes (like a bankruptcy or foreclosure) can lead someone to a payday loan. Thankfully, there are a number of quick loan alternatives that you can use to cover an unexpected bill — even if you have bad credit.
What to Look for in a Quick Loan Alternative
You should be picky when you decide who to borrow from. Look for these characteristics when you search for a quick loan alternative.
Payday loans are so difficult to pay down because they accumulate interest faster than any other type of loan. When you search for an alternative, one of the first things you should look at is the APR. Do the math and choose an option that offers a low interest rate. This will leave you with more money after you pay back what you owe. MoneyLion Instacash offers a 0% APR on cash advances up to $250.
Low or No Fees
Like a high interest rate, expensive service fees can make it more difficult to pay back your loan. Look for a loan with low or no fees. Focus on banks and lenders who are up front with you about what types of fees they charge.
Quick Signups and Services
If you need money fast, you might not have time to schedule a trip to the bank. Look for banks and lenders who allow you to apply for a loan online and who offer quick signups. Additionally, you should look for a bank or lender who can process your application quickly. You can qualify for MoneyLion Instacash advances at 0% APR in minutes via the MoneyLion app.
No Impact On Your Credit Score
If you’re considering a payday loan, chances are that you have a low credit score or you don’t have any credit at all. Unfortunately, some banks require a “hard check” on your credit before they’ll agree to give you a loan. During a hard check, the bank pulls your credit report and views your score. Hard checks stay on your credit report and temporarily lower your score. This can be especially frustrating if you’re working to build up your credit and you need a loan. Look for a payday loan alternative that doesn’t require a hard check on your credit.
Instacash Cash Advance, the Fast Loan Alternative
If you need cash fast, an Instacash advance from MoneyLion can help you get money without paying tons in interest or excessive fees. With Instacash, you can get up to $250 deposited into your account at 0% APR and with no waiting time. Instacash allows you to access your next check early with no penalties — because everyone needs a little boost sometimes.
How to Get an Instacash Cash Advance from MoneyLion
Do you think that can Instacash advance might be right for you? Here’s how to get started!
Create an Account With MoneyLion
First, download the MoneyLion app from the Google Play or Apple App store. Open the app and follow the in-app instructions to start creating your account.
You’ll need to provide a bit of personal information to get started with MoneyLion. Enter your full legal name, address, phone number, and Social Security number when prompted.
You’ll also need to provide a copy of a valid photo ID. State-issued driver’s licenses and ID cards, military IDs, and passports are all eligible forms of identification to open a MoneyLion account.
Qualify for Instacash
It’s easy to qualify for Instacash, and there is no credit check to apply. Check out your options for accessing interest-free cash advances up to $250 in the MoneyLion app and find out if you qualify in minutes.
Click on the “Finances” Tab
From the MoneyLion app, click on the tab labeled “Finances.” You should see it at the bottom of your screen. Then, click on the button that says “Instacash.”
Select How Much Money You Need
Depending on your membership type or direct deposit paychecks, you can get up to $250 in an Instacash cash advance deposited into your account immediately. Scroll through the options available to you and click the amount of money that you need. Then, confirm your transaction.
Enjoy Your Cash
You’ll see your Instacash in your checking account as soon as you confirm your transaction — no waiting weeks for an approval. You can use your Instacash for anything that you need. When your next paycheck arrives, you’ll see what you borrowed deducted from your account.
Managing Your Money Safely
If you have a bill looming over your head, it’s easy to feel desperate. You might feel scared, panicked, or even hopeless. These are the feelings that drive people to payday loans. The truth is that there are better alternatives to these predatory and expensive loans. If you’re struggling to pay your bills this month, take a deep breath and remember that you do have options.
Do you need Instacash fast? Don’t hesitate — sign up with MoneyLion today to start down the road to a healthier financial future. Begin by downloading the MoneyLion app from the Google Play or Apple App store today.
MoneyLion Checking Account provided by, and MoneyLion Visa® Debit Card issued by, Lincoln Savings Bank, Member FDIC. Terms and conditions apply.
Investment advisory services provided by ML Wealth, LLC. Investment Accounts Are Not FDIC Insured • No Bank Guarantee • Investments May Lose Value. For important information and disclaimers relating to the MoneyLion Investment Account, see Investment Account FAQs and FORM ADV. Broker-Dealer may charge a $0.25 withdrawal fee, among other fees. Funded accounts are subject to administrative fee of $1 per quarter.
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.