How To Avoid Payday Loans

Hanneh Bareham has been covering personal finance for Bankrate since 2020. She is part of the loans team, covering credit cards, student loans and payday loans.

Payday lenders typically require borrowers to write postdated checks for the amount borrowed plus fees. These are due at the end of the loan period, usually two weeks. Many borrowers roll over their loans or take out new ones, creating a cycle of debt.
Easy to get
A payday loan is a small amount of money that’s due on the borrower’s next paycheck. It’s easy to get and repay, but it comes at a high price. According to the Consumer Financial Protection Bureau (CFPB), nearly a quarter of initial payday loans are rolled over or re-borrowed nine times or more. This creates a vicious cycle of debt, as fees and interest continue to add up.

Unlike traditional bank loans, most payday lenders don’t require a credit check or references. The application process is simple, and funds can be available within a day or two. Many lenders also allow borrowers to apply online and via mobile app.

Another option is to use a personal loan from a local community bank or credit union, which typically has lower rates than national banks. You may also be able to find an online "buy now, pay later" lender that splits up the cost of an expensive purchase into monthly installments for page zero interest or a low fixed rate APR.
Easy to repay
A payday loan is a quick source of cash, typically for less than $500. The borrower gives the lender a postdated check or electronic access to their bank account and agrees to repay it on their next paycheck. However, these loans can quickly become a debt trap that requires more fees to pay off the original loan.

A better alternative to payday lending is a personal loan with a more flexible repayment schedule. Many community banks and credit unions offer low-cost loans with terms up to a year and rates that are much lower than payday lenders.

Other options include reaching out to local charities or churches that may be able to lend you the funds you need, or using "buy now, pay later" apps that split up purchases into multiple payments, often without interest or fees. If you need emergency funding, carefully weigh the costs and benefits before making any decisions. NerdWallet recommends that you always borrow only what you can afford to repay.
No hidden fees
While it may seem tempting to use payday loans as a quick fix, the high interest rates can create a cycle of debt that is difficult to break. Instead, consider borrowing from a personal lender with low or no fees and repaying it over time. You can manage your borrowing online and check your remaining balance at any time, day or night. Borrowing from a credit card or using "buy now, pay later" apps can also provide an alternative to payday loans, though these options should be used for necessary expenses only.

To apply for a payday loan, you typically need to provide a paycheck stub, a government-issued photo ID and a blank check from your bank account that will cover the amount of the loan plus any associated fee. Then the loan company will cash the check or electronically withdraw funds from your bank account on your next payday. Some states outright ban payday lending, while others regulate it and cap interest rates.
Military protection
As a military member, you have special protections in place under the Military Lending Act. This includes a cap of 36% on the Military Annual Percentage Rate for payday loans, refund application loans, deposit advance loans, installment loans and unsecured open-end credit. This cap also applies to fees tacked on for credit-related ancillary products. These protections are available to active duty service members, their spouses and their dependents. In addition, you can find financial help and advice from nonprofit credit counseling agencies. You should always consider alternative options to payday loans, such as asking family and friends for help. If you cannot afford to repay your loan, contact your Judge Advocate General’s office for assistance.