What is a Payday Loan?
A payday loan is a short-term, high-interest loan typically due on your next payday. Borrowers write a post-dated check or authorize an electronic debit for the loan amount plus fees. While they offer quick access to cash, the costs can be devastating.
⚠️ The True Cost of Payday Loans
A typical payday loan charges $15-30 per $100 borrowed. For a $500 loan held for 2 weeks, that's $75-150 in fees—equivalent to an APR of 391-782%. Compare this to EarnIn's 0% APR or OppLoans' 59-160% APR.
How Payday Loans Work
- 1
Apply
Provide proof of income, bank account, and ID. Applications take minutes online or in-store at lenders like Advance America or Speedy Cash.
- 2
Get Approved
Most payday lenders don't check credit. Approval is based on income and bank account status.
- 3
Receive Cash
Get cash same-day in-store or next business day via direct deposit.
- 4
Repay
On your next payday, the lender withdraws the loan amount plus fees from your bank account.
The Debt Cycle Trap
The CFPB found that 80% of payday loans are rolled over or followed by another loan within 14 days. Here's how the trap works:
📊 The Debt Cycle Example
You borrow $500 with a $75 fee → On payday, $575 is withdrawn → You don't have enough for bills → You borrow again → Repeat. After 6 months, you've paid $450 in fees on a $500 loan. Learn how to escape the debt cycle.
Better Alternatives to Payday Loans
Before taking a payday loan, consider these much cheaper options:
| Alternative | APR | Max Amount | Best For |
|---|---|---|---|
| EarnIn | 0% | $750 | Employed workers |
| CareCredit | 0% promo | Credit limit | Medical/Dental/Vet |
| Credit Union PAL | Max 28% | $2,000 | Credit union members |
| OppLoans | 59-160% | $4,000 | Bad credit + building credit |
| Advance America | 143-688% | $5,000 | Last resort |
✅ Our Top Recommendation
If you're employed with direct deposit, start with EarnIn. It's completely free (0% APR) and you can access up to $750 per pay period. For larger amounts or credit building, try OppLoans. Compare all options.
Frequently Asked Questions
Final Thoughts
Payday loans should be an absolute last resort. With alternatives like EarnIn (0% APR) and OppLoans (59-160% APR), there's almost always a better option than paying 400%+ APR.
Next Steps: Compare all lenders to find the best option for your situation. If you're stuck in payday loan debt, read our escape the debt cycle guide. To prevent future emergencies, start building an emergency fund.
Michael Chen, CFP
Certified Financial Planner with 12 years in consumer finance