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It can be tough keeping up with bills, especially if you do not have a savings fund for any emergencies that might come up. And emergencies do come up—from sudden unemployment to unexpected medical bills. That’s why many people turn to short-term loans like payday loans from direct lenders or alternative sources of fast cash.

With payday loans, you can cover any surprises without worrying about long formal applications or slow approval times. This can make dealing with these unforeseen expenses much easier in the moment.

But while payday loans might seem like the solution right now, they come with their share of risks. Before applying for one, it’s important to understand how they work, the fees tied to them, and how to handle them. You might find that another fast loan, like installment loans, is the better option when getting out of a financial bind.

What Are Payday Loans?

Payday loans are one of the most common types of alternative financing to personal loans and other loans from direct lenders. In fact, over 12 million consumers take out payday loans every year.

Like most personal loans online, payday loans are unsecured loans. This means you do not need to put up collateral—like a car or another asset—to get funds. Payday loan lenders do not typically require borrowers to have good credit to qualify.

However, these loans usually come with very short repayment terms. Most payday lenders require you to pay back the entire loan (plus any interest or other charges) by your next payday—or within two to four weeks. Because of the short repayment term, many borrowers have trouble paying back their loans on time.

This is different from how installment loans work. Installment loans usually have much longer repayment periods of several months or years. With an installment loan, you must make fixed monthly payments over a set period until you repay the entire amount owed. A longer repayment term often makes it easier to keep up with payments.

Unlike installment loans, payday loans come in smaller amounts—usually no more than $1,000 (depending on the state). This makes them good for handling small emergency expenses but not larger or ongoing ones.

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Accept your loan by 10:30 am Central time (Monday - Friday excluding holidays) and you can get your funds on the same day.*

How Do Payday Loans Work?

The way payday loans work is simple. You can apply for one through a brick-and-mortar location as you would for a title loan, furniture financing, or retail credit card. Some payday direct lenders have a fully online loan application and funding process, though.

Most payday loan lenders will not require a credit check. This makes them good no-credit-check loans for borrowers with limited or poor credit history. Only rarely will lenders offering online payday loans perform a hard credit check or hard inquiry. If this happens, it could bring your score down by a few points.

When you apply for a payday loan, you must provide proof of income and have an active bank account. The lender may also ask for information about your current employer and the next expected pay date.

Once you’ve completed the payday loan application, the lender will review it and decide whether to lend you the money. Similar to some installment loan lenders—like Jora—they will typically make their decision the same day you apply.

If approved for a loan, the lender might require you to write a postdated check for them to cash out on your next payday. Other payday lenders will require you to set up a direct debit through your bank account so they can withdraw the funds directly once you’re paid.

Are Payday Loans Legal?

Payday loans are legal in many states, but not all. Loan amounts, terms, and finance charges are all regulated by federal and state law. Some states also limit how many payday loans you can take out at one time.

The Consumer Financial Protection Bureau (CFPB) also attempts to regulate payday lending throughout the country. The main purpose behind this is to keep borrowers informed and prevent them from falling into the payday loan debt trap.

If you’re unsure whether payday loans are legal in your state or if the lender is licensed, you can check with your state’s attorney general’s office. The National Conference of State Legislatures website also has a detailed list of each state’s current rules on payday lending.

Even if payday loans are prohibited in your state, you could still qualify for another emergency loan, such as installment loans online, cash advances, or other instant loans. Depending on your credit score and income, you may also qualify for personal loans for bad credit online or other quick loans online.

Where to Get Payday Loans

You can apply for payday loans online or in person at storefront locations. If you’re looking for payday loans near you, you can do a quick online search.

Not all payday lenders use the term “payday loan.” Some might call them cash advances instead. Others might call them no-credit-check loans or fast cash loans. Keep an eye out for these types of phrases when looking for easy loans.

Factors to Consider With Payday Loans

Before getting a payday loan, there are several factors you should consider, such as loan amounts, repayment terms, interest rates, and lender requirements.

Interest Rate

Unlike most installment loans online, most payday loans do not have a typical interest rate. These loans still have fees, though. Payday lenders typically determine how much to charge based on the amount you’re borrowing.

In most states, payday lenders can charge between $10 and $30 for every $100 borrowed. For example, if you take out a $200 payday loan, the lender could charge you between $20 and $60 in financing fees. You can convert this financing fee into an annual percentage rate (APR).

Many payday lenders also charge additional fees, such as late fees. Keep an eye out for this before agreeing to take out a loan.

Existing Debt

As emergency loans, payday loans are helpful when you’re in a pinch. But short repayment terms and hidden fees can make them difficult to pay back on time.

If you’re currently struggling with large amounts of debt or are living paycheck to paycheck, a payday loan might not be the best option for you. After all, if you’re having trouble making regular payments, you might not be able to repay the payday loan with your next paycheck.

If you do not have enough money to repay the payday loan, the lender could charge additional fees. You could also end up in a greater financial bind where you do not have enough money to pay for the necessities or other bills.

Before taking out a payday loan, consider your regular expenses and make sure you can reasonably afford to repay the new debt. If you’re not sure, an installment loan might be the better option. Some direct lenders for installment loans online, like Jora, offer fast loans with flexible repayment terms and no hidden fees.

Loan Amounts

Payday loans typically come in small amounts ranging from $200 to $1,000. Ask yourself how much money you need and only apply for that amount. That way, you can avoid borrowing more than you need and ending up in financial trouble. Calculate how much you’re borrowing, plus any financing or interest charges, and make sure you can afford to repay it on time.

Benefits of Payday Loans

Payday loans come with several key benefits, especially if you’re looking for loans for bad credit. Here are the main reasons why a payday loan might be a good option to consider.

Easy Loan Requirements

Payday loans usually have very few loan requirements, especially when compared to personal bad credit loans or some installment loans—like mortgage or auto loans. Since the lending requirements are so lax, these short-term loans can be useful if you need emergency money or cash fast.

To qualify, you’ll typically need to be at least 18 years old and have proof of income, a bank account, and a valid ID. Most lenders will not check your credit either, making it even easier to get a loan.

Keep in mind that you do not need to go through a payday lender to qualify for financing—even if you have bad credit. Some online installment loan direct lenders, including Jora, use other factors besides your credit score when deciding whether to lend you money.

Simple Application Process

Whether you apply in person or online, the loan application process is usually simple. It should also only take a few minutes to complete. This is similar to how a direct lender installment loan tends to work.

Fast Funding

Like many bad credit installment loan direct lenders, many direct payday lenders can approve your application and disburse the funds the same day you apply. The lender will either deposit the cash into your bank account or give you the money upfront. This makes payday loans a good option when you need to borrow money quickly for an emergency.

Unsecured Loans

Some traditional lenders only offer secured loans for people with bad credit. Secured loans require you to put up an asset— like a car or property—to get the funds. If you do not repay the loan on time, the lender might seize that asset instead.

This is not the case with payday loans. Payday loans are unsecured loans for borrowers with bad credit. They do not require collateral, making them less risky to the borrower. Even if you do not repay the loan on time, your assets will be safe.

Many online installment loans direct lenders—like Jora—offer unsecured loans that are not payday loans. These bad credit online loans are also less risky to borrowers and come with fewer fees than payday loans.

Drawbacks of Payday Loans

Although payday loans come with several benefits, such as no-credit-check and fast cash for emergencies, they also have their disadvantages. Depending on your situation, these may not be the best loans for bad credit.

Expensive with Hidden Fees

Drawbacks of Payday Loans Although payday loans come with several benefits, such as no-credit-check and fast cash for emergencies, they also have their disadvantages. Depending on your situation, these may not be the best loans for bad credit. Expensive with Hidden Fees Even if you properly budget for them, payday loans are still an expensive form of financing. And, unlike installment lenders like Jora, many payday lenders charge hidden fees. If you’re not careful, you could end up paying more than you bargained for or ending up with a loan you cannot afford.

If you do not pay back your payday loan when it’s due, your lender might let you roll over your original loan into a new one. This option will give you more time to repay the amount borrowed. However, the new loan will come with its own financing charges and other fees. All of these fees can quickly add up, leading to more debt.

Predatory Lending Practices

Some payday lenders are less reputable than others. Many lenders offer payday loans even when they are not licensed to work in your state. This can make regulating them difficult. It can also reduce your protection as a consumer. Before working with any lender, make sure they’re legally allowed to operate in your area.

Overdrawn Bank Account

If you’ve authorized an automatic electronic payment through your bank account, your payday lender can try to withdraw money when the payment is due. But if the funds are not there, you risk overdraft fees or other issues.

You may be able to prevent the lender from debiting your account, but you will need to act quickly. Typically, you will have to stop the upcoming payment at least three business days before it happens. Even if you cancel the automatic payment, you will still be responsible for repaying your payday loan.

Does Not Build Credit

Taking out a payday loan will not usually help you build credit. This is because most payday lenders do not report positive payment activity to the credit bureaus—TransUnion, Experian, and Equifax. Even if you repay the loan on time, it will not help your credit score.

On the flip side, payday loans could damage your credit. Payday lenders will often report missed or late payments to the credit bureaus. If you fail to repay the loan, they might even send the account to a collection agency, which will also affect your credit score.

If you’re looking for ways to build credit while getting the cash you need, it might be time for an installment loan. Many installment loan lenders will report your payment activity to the credit bureaus, which can help you establish or repair your credit.

How to Apply for a Payday Loan

Most payday lenders have the same general requirements when applying for a loan. Typically, you will need to provide the following information:

  • Proof of income (ex. paystubs, W2s, letter of employment, or recent tax returns)
  • Proof of direct deposit from your employer (in some cases)
  • Valid ID showing you’re at least 18 years old (ex. driver’s license or state license)
  • Social Security card
  • Physical address and other contact information
  • Bank account information

Many of these requirements are the same as what you’d get with other financing options, like title loans or personal loans.

Once you have the required information, all you’ll need to do is complete the application—either in person or online. Then, simply wait for the lender to approve or deny it. If approved, you should receive the funds either the same day or the following business day.

Frequently asked questions
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Who Should Get a Payday Loan

Payday loans can be useful in certain situations, such as when you need emergency cash and do not have time to wait for funds. They can also be good for borrowers with poor credit or no credit history.

Most people who take out payday loans do so for small expenses like upcoming utility bills, rent, or student loan payments. As long as you can repay the payday loan on time, you can avoid late fees caused by missing payments on other bills.

A Closer Look at Bad Credit Loans

Bad credit loans are, in most cases, unsecured loans that do not use the borrower’s credit as part of the decision- making process. These loans are typically easy to get, have a quick application process, and come with fast funding times. Some direct lender loans also come with flexible repayment terms and loan amounts. Direct lender loans for bad credit also often come with fixed rates. Like payday loans, you may be able to apply for a bad credit loan online.

Alternatives to Payday Loans

Many alternatives to payday loans exist, ranging from bad credit installment loans to emergency 401(k) loans. Any of these options can help if you’re dealing with a financial hardship and need help getting out of it quickly. Here are the main options to consider. Before choosing one, read through the terms and make sure you choose the best one for you.

Family and Friends Loan

One way to save money on interest fees and other charges is to ask a friend or family member for a cash loan. In most cases, they will not require a credit check or formal application. All you need to do is choose the right person and be upfront about how much you need and why.

Asking for a personal loan from a family member or friend can be tricky. But you can make sure it goes smoothly by setting up a clear repayment plan with them. This plan can include things like your monthly payment amount and interest (if any).

Pawn Shop Loans

Another alternative to payday loans is a pawn shop loan. To get a pawn shop loan, you can exchange a valuable item—such as jewelry or an electronic—for a small amount of cash. These loans are usually easy to get and do not require a credit check.

Typically, you will have about a month to come up with the funds to repay the loan and any interest. If you do not pay back what you owe on time, the pawn shop might sell your item to recoup the cost.

If you do not want to risk losing your valuables, you might want to consider an alternative to pawn shop loans. Or you might look for another way to avoid pawn shop loans altogether—such as by taking on a side gig for some extra cash.

Cash Advance Loans

Cash advance loans are another short-term loan option with fast funding times and no credit checks. You can take out a cash advance loan through a bank, credit union, or online lender. The money you take out then comes out of your upcoming paycheck.

Alternatively, you can use a cash advance app for the same reason. This option lets you borrow ahead of your next paycheck a few days early. Some apps come with service fees, while others are free to use. Very few charge interest.

Installment Loans

So, what is an installment loan?

Installment loans are often very flexible financing options with longer repayment terms than payday loans. Installment loan direct lenders online like Jora do not charge any hidden fees. You could also get an installment loan online if you have a poor credit history.

When you apply through Jora, you could receive funds the same day (depending on what time you accept the loan offer).* Once you have the money in your account, you can use it for whatever you need. This is convenient for when you need money now.

Get Quick Cash

Today Even if you have less than stellar credit, you could still qualify for a short-term loan like a payday loan. However, payday loans tend to come with expensive fees and short repayment terms that make them hard to pay back.

As an alternative, consider taking out an installment loan through Jora. These direct loans come with flexible terms based on your financial situation. Unlike payday loans, which are usually small, these loans also come in amounts of up to $4,000.*

Learn more about how Jora’s installment loans work, how much you could borrow, and more. Or apply today.