Payday loans are often advertised as a great way to get an advance on your paycheck if you are having a challenging time in-between paydays. However, they are not as sweet as they might seem at first glance. In this article, we’ll discuss payday loans, their pros and cons, and whether or not they are a good idea. So, if you find yourself low on cash between paychecks and have considered taking out payday loans, keep reading below to learn if the benefits outweigh the risks. 

What is a Payday Loan?

A payday loan is essentially a very, very short loan. By very short, we mean that payday loans are typically a couple of weeks at maximum. You can get payday loans at both storefronts and online, although they are popping up online much more frequently now. You can complete the application process in only a few minutes, and the loan essentially advances part or all of your upcoming paycheck so that you can receive that money faster. Rather than waiting for a direct deposit or a check from your employer, you get some cash upfront. 

How Do Payday Loans Work?

Payday loan lenders verify your income and then verify whether or not you have a checking account. Once these two things are verified, the funds will be deposited into your account. However, when these funds are deposited, you are also usually required to write a postdated check that includes the amount of the loan as well as the interest ahead of time. Since credit history is essentially ignored when you use payday loans, this is why you must use a postdated check. Additionally, lenders usually require that your paycheck be automatically deposited into your account so that the check is sure to clear by the marked date. 

Why Would I Need to Take Out a Payday Loan?

Payday loans are for people who need fast cash. Whatever reason you may have for taking one out, payday loans come in handy when you absolutely cannot wait until your next paycheck to make a purchase or payment. Additionally, if you need to take out a loan but have poor credit, you may be inclined to take out a payday loan since they do not check your credit, nor are they concerned with your credit history. Since nearly 65 percent of Americans are living paycheck-to-paycheck, the idea that you may need a fast, unexpected loan is definitely not unheard of. 

Why Are Payday Loans Bad?

There are a few different reasons why payday loans are considered “bad” or irresponsible to take out. For one, the interest rates on these loans are usually incredibly high. For example, APRs on payday loans can regularly be anywhere from 400 percent to 500 percent! That would mean that if you needed to take out a $500 loan for two weeks, you’d be paying $575 back to the lender at the end of that loan period. However, that’s if the loan is paid back on time and in full. 

That being said, many people who take out payday loans get sucked into a vicious cycle of borrowing and not being able to pay it back. Payday loans are already being utilized by people who are struggling to afford basic necessities, and usually, this struggle doesn’t stop at the point of repayment. So while you might write off one payday loan in your head as okay, one can lead to others and leave you more financially stuck than you were before. After a while, the debt can become insurmountable. 

Why Are Payday Loans Good?

Payday loans can be good for highly financially disciplined people who know they will undoubtedly have the money to pay the loans back on time. For example, suppose you genuinely need fast cash on that particular day or week and know you will be able to repay the loan with interest properly. In that case, a payday loan can save you from going into further debt or waiting to make a necessary purchase. However, in order for a payday loan to truly benefit you and prevent you from going into further debt, you need to know precisely what you’re getting into and when you will be able to make the repayment.

Are There Any Payday Loan Alternatives?

While payday loans might seem like the only option for some, remember that there are a few alternatives to them that cost far less when all is said and done. While these alternatives may be less time-efficient, you’ll have a decent backup plan if you prepare for them ahead of time. And the funds can really come in handy when you need them most. 

Personal Loans 

Personal loans are essentially just loans that you can use for any personal expense, whether it be medical bills, rent, groceries, or something else. APRs on personal loans can vary depending on your credit score and history, but they usually hover around 8.5 percent. You can borrow small or large amounts of money depending on your needs, but usually, these loans are capped at around $10,000. Some lenders even aim to provide personal loans help to those with poor credit. While some interest rates can hover up in the teens, they are still typically less expensive than payday loans and have longer terms. 


Borrowing money is a tried-and-true method when you are in a bind. Borrowing can exist in many different forms, but asking friends or family to borrow money can help if you need longer or more flexible repayment terms. For example, a friend or family member likely won’t charge you interest rates, and you can negotiate repayment if you need more time. Additionally, borrowing could involve asking for a cash advance from your job, particularly if payday is close. Depending on your relationship with your employer, this could work as well. 

Credit Cards

Credit cards and lines of credit can be another alternative to payday loans, especially if your card has a high limit, can earn you points or cashback, or has a lower interest rate. Rather than actually taking cash to pay for a purchase or payment using a payday loan, put it on your credit card and at least earn some rewards for that purchase. Additionally, interest rates on credit cards are typically far lower than payday loans, and you can carry a balance over without penalty if you need more time to repay. However, this idea is only for those with a proven track record of keeping credit cards in check

What Are the Best Ways to Avoid Needing Payday Loans?

The best way to avoid needing a payday loan is to prepare and budget as well as you possibly can. There are many excellent free budgeting apps that can help you create and stick to a budget. Slowly building up an emergency fund is also a great way to account for unexpected bills and purchases, so you will be able to cover a payment in case something comes up. Set aside small amounts of money into savings as often as you can, and have a credit card on hand in case of emergencies. 

So, Are Payday Loans a Good Idea?

Generally, it’s safe to say that payday loans are not a very good idea. While they can be applicable in certain circumstances, they are typically more trouble than they are worth. Payday loans should be used as an absolute last resort when you are in need of fast cash since they can quickly cause the borrower to fall into a vicious financial cycle.