Home > Personal Loans > Should I Get a Payday Loan for the Holidays?

Comments 0 Comments

For those of us who work a full-time job, payday often can’t come soon enough. Sadly, what often comes too soon are the bills that have to be paid from our paychecks. When shopping for the holidays gets added to those bills, we feel the squeeze financially. And we can be tempted to get a payday loan to help with holiday expenses.

Also referred to as cash advance loans or short-term loans, payday loans hold the lure of quick cash whenever you need it. But, is getting a payday loan for the holidays a good idea?

How Payday Loans Works

Payday loans are loans against your next paycheck. You pay interest—usually at a high interest rate. In the end, you can pay a lot of money for quick access to a little cash. You have to repay the principal and interest and possibly added charges on your next payday or within a predefined, short term of one to three months.

Like any loan or finance agreement, payday loans have advantages and disadvantages.

Perhaps the biggest disadvantage is the cost. Take for example, Lendup.com. On their Payday loans page, they show that if you take out a $200 loan today, you’ll pay a finance change of $35.20, which is a whopping 458.86% APR!1 You have to pay the loan back at $235.20 in just 15 days. So, to have $200 today, costs you $235.20 in just 15 days. The nice thing is that LendUp is upfront about that interest rate. Many payday lenders are not.

Disadvantages of a Payday Loan

It’s important to not get a payday loan as an alternative to a long-term loan. Payday loans have much higher interest rates than loans with longer terms. You often will be required to repay a payday loan with a single payment using your next paycheck. If you can’t and your loan persists or your lender encourages you to roll your loan over, you end up paying a lot more in interest than the quick cash you gain. Think of our sample $458.86% APR compounded every two weeks.

And the U.S. Consumer Financial Protection Bureau (CFPB) reports that 80% of payday loans aren’t repaid in two weeks. They also report that interest rates can reach 521% or more.2 What’s more, each time you can’t repay, the interest rate can go up even more.

Comparatively, interest rates for a credit card are usually no more than 30% for bad credit, less if you have good credit. Other types of loans also have significantly lower interest rates—whether a personal loan or an online loan. Read how payday loans compare to personal loans.

Payday loans are also often limited as far as the amount you can borrow. The CFPB defines a payday loan as one that is generally for $500 or less.

Advantages of a Payday Loan

The main appeal of a payday loan is the chance to address immediate financial problems. Designed to be quick cash solutions, payday loans let you access cash without taking on long-term debt or having to call on friends or family for help. But, that assumes you can repay them in two weeks and are willing to pay a pretty hefty price. If you can’t repay, you are taking on longer-term debt and at a steep rate.

Payday loans don’t affect your credit score, which might be a benefit depending on your situation. You also won’t be asked to provide a lot of information to obtain one or have your credit checked in most cases. But is the cost worth it? You have to ask yourself and understand what you’re taking on.

Alternatives to a Payday Loan

Before you get lured into taking on a payday loan, consider all your options. Also ask yourself if you really need that money for just a few weeks. Alternatives include:

  • A credit card. Even if you have poor credit, you can likely find a card for your needs. And no card will charge anywhere near the interest of a payday loan.
  • If you already have a credit card, see if you can use it for a cash advance.
  • Ask a friend or relative for a loan.
  • Ask your employer for an advance against your next paycheck.
  • Look into emergency assistance programs from local churches or community groups.
  • Consider a personal loan from a non-payday lender. These loans often have APRs more similar to credit cards. Even those with higher APRs rarely approach the 500% APR mark.
  • Ask your creditor for a brief reprieve until you next paycheck. All the creditor can do is say no. You could even offer the creditor the money you’d pay in interest on a payday loan for agreeing to let you wait. You won’t be any poorer in the end and you won’t be stuck with a loan.
  • Take a loan from your IRA or 401K. Even at the 10% penalty for a loan from either, you’re better off than with a higher interest rate on a payday loan.
  • Sell something to cover your costs or consider using a pawn shop for a loan.
  • Wait if you can.

How to Apply for a Payday Loan

If you do decide that you have to have a payday loan, you can get one at a payday loan outlet or online. Regardless of where you choose to get your payday loan, be prepared to prove you have a regular fixed income and a bank account. You may also need to provide:

  • A copy of your debit card
  • A copy of a government-issued ID
  • Proof of your current residential address, such as on a bank statement or utility bill
  • Proof of income
  • A copy of one or more bank statements

If you choose an online payday lender, you’ll have to open an account and verify your identity online to get your loan.

To Get a Payday Loan or Not

Regardless of what you decide, weigh your decision and your options carefully before you make any commitments. Draw up a budget so you know exactly how much you need and ensure you can pay it back on time. And ensure you’re willing to part with the interest money down the road. That way, you won’t end up getting money quickly that ends up costing you a lot of money in the end.

Want to know even more about payday loans? Find it in “The Truth About Payday Loans.”

1 https://www.lendup.com/payday-loans as of Dec. 12, 2018.

2 https://www.incharge.org/debt-relief/how-payday-loans-work/

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.



Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team