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Man afraid of payday loan interest rate


Are Payday Loans Usurious?  The Pros and Cons You Need to Know Before You Get In Over Your Head

Sometimes we simply need cash – fast.  Payday loans are designed to service this need but, at the same time, are considered a predatory lending practice.  What is a predatory lender? One that targets low income borrowers and charges them usurious rates that are much higher than the typical bank or consumer credit card – an astounding 300% or higher. Gee thanks!

If you are considering a payday loan, there are six things you really want to know before moving forward

PayDay Loan Gotchas

  1. High interest rate.  Your interest rate will be high.  Super high.
  2. Bank account access.  You will have to provide access to your bank account for automatic drafts or write a post-dated check up front that is later deposited by the lender in typically two weeks time.  This check is for the amount of the loan + their fee. Don’t let it bounce!
  3. Cycle of debt.  Unfortunately, for many payday loan borrowers, the loans become a dependency that the borrower can never get out of.  Every two weeks a new loan is established and then paid back. Who are you working for now?
  4. Minorities suffer the most.  Payday loan providers have unlocked a great business model – for them.  Frequently located in minority neighborhoods, these predatory payday lenders may be doing more harm than good. 
  5. No credit score benefit.  Even if you are a perfect payday loan borrower, you will not receive any impactful benefits to your credit score that may qualify you for a personal loan from your bank at a much lower interest rate.   
  6. You can be sued.  If you default on the loan, the payday loan provider has the right to sue you in court and garnish your future wages.  Court fees will be incurred and your employer will be aware of your situation – embarrassing in the least!


Average PayDay Loan Interest Rate*


% Of PayDay Loans That Don't Get Paid Back In Two Weeks*

Lots of people use payday loans so what's the big deal?

Four PayDay Loan Advantages

  1. Fast cash.  When you’re in a pinch and just need a few hundred dollars to tide you over until the next paycheck, a payday loan may be for you. Applications can be approved in as little as a few minutes and the cash in hand in under 24 hours.
  2. Easy requirements.  Have proof of a job with minimum required income and an active bank account?  That is typically all you need. A potential fit for people with low credit scores.
  3. No credit check.  Enough said; however, the typical payday loan will not contribute to improving your credit score.
  4. No collateral.  Since payday loans are unsecured by personal assets you won’t have to sign over your house or car in the event of default.  Proof of salary and paycheck acts as surety for your short-term loan.

Are there alternatives?  If you have strong relationships, you may be able to obtain a low cost or even zero percent advantages of a friends and family loan with more flexible terms.

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