If you’re facing a financial emergency, a same-day payday loan may help cover your short-term needs until your next paycheck.
But you’ll likely pay for the convenience of short-term loans — payday loans are notorious for excessive fees that add up to triple-digit interest rates. With payday loans, it’s not uncommon to pay fees that translate to APRs, or annual percentage rates, of nearly 400%. Payday lenders typically loan small amounts, often $500 or less, with repayment often due by your next payday, although terms vary by state.
Payday lenders often tout same-day funding as a selling point, but that doesn’t always mean you’ll get your money on the same day you’re approved. When you receive funds will vary by lender.
Should I consider a same-day payday loan?
Payday loans should only be used as a last resort after you’ve exhausted other options. If you’re looking at a same-day payday loan, it’s important to weigh the pros and cons. Here’s a breakdown of what to think about.
Benefits of same-day payday loans
- Potentially fast cash when you need it: If you need a car repair as soon as possible, a same-day payday loan may get you the cash you need quickly — sometimes the same day or by the next business day — depending on the lender.
- No collateral required: Payday loans are unsecured loans. Unlike a pawn loan or a title loan, you don’t have to put your car or personal property up as collateral to back the loan.
- Bad credit may not be a deal breaker: People with less-than-stellar credit scores might still get approved for same-day payday loans. Some payday lenders don’t perform credit checks.
- Lender options: Depending on your state’s law, you may be able to apply for a payday loan online or at a storefront.
Drawbacks of same-day payday loans
- High fees and APRs: Watch out for payday lenders that advertise seemingly low fees, because they can add up to a sky-high interest rate. The Consumer Financial Protection Bureau says a $15 fee per $100 borrowed is common. That works out to an APR of almost 400% for a two-week loan. In comparison, in May 2019, the average interest rate for a 24-month personal loan was 10.63% and the average credit card interest rate was 15.13%, according to the Federal Reserve. A personal loan or credit card may be a less expensive way to fill a financial gap.
- Potential debt cycle: Payday loans can put you in a debt hole that’s difficult to climb out of. The CFPB found that four out of five payday loans are reborrowed within a month, meaning you may face even more fees. Eventually you may even pay more in fees than you borrowed.
- Not a long-term solution: If you can, create an emergency savings fund to use when unexpected expenses come up. If borrowing small sums of money here and there becomes a routine, you could find yourself over-relying on debt instead of resolving underlying problems.
What are my alternatives to a same-day payday loan?
Payday loans aren’t the only option when you need to borrow money fast. Comparing payday loans with alternatives can help you find the right choice for your circumstances.
Use an existing credit card
If you already have a credit card, you may want to consider tapping into it when you need money. The interest rates on your current credit cards may be far more competitive than rates for payday loans.
Apply for a payday alternative loan
Some federal credit unions offer payday alternative loans, which limits your application fee (capped at $20). Loan amounts are available from $200 to $1,000 and come with loan terms from one to six months.
To apply, you’ll have to be a credit union member for at least a month.
Apply for a small-dollar personal loan
An unsecured personal loan is paid off in monthly installments over a set period of time. Loan terms vary by lender, but commonly range from 24 to 84 months, giving you some time to spread out the payments.
Consider a cash advance
A cash advance lets you borrow money against your credit card’s available balance. But cash advances typically come with processing fees and higher interest rates than regular credit card purchase rates.
If you don’t want to turn to a credit card, several apps are putting a new twist on cash advances.
- Earnin is an app you can use to get a paycheck advance for the time you’ve worked at your job before you get paid. You can get up to $100 per day with no required fees or interest — you tip what you think is fair. When your paycheck is deposited into your bank account, Earnin will automatically withdraw the money you owe.
- Branch is an app that works a lot like Earnin. You can ask for an advance of 5% to 10% of your last paycheck. The money you borrow is automatically deducted from your bank account. This cash advance is also free of mandatory fees unless you opt for the instant deposit option, which costs $3.99 per instant delivery advance.
Payday loan laws and regulations vary by state. Some states don’t allow same-day payday loans at all, while others have strict rules for how much payday loan companies can lend and how much they can charge to let you borrow.
If you want to take out a payday loan, it’s a good idea to check your state’s laws first and read reviews online. And don’t forget: There are other borrowing options to compare before you choose to get a payday loan.