Skip to main content

Payday loans are short-term, high-interest loans which are used by 12 million Americans each year to cover urgent costs. 

There are many factors to consider when deciding whether to apply for a loan. If you are really stuck, talk to a financial advisor; they have experience and can provide reliable advice. Here are a few key considerations to think about. 


Do I Need A Payday Loan? 


There is one simple question to answer – do you have an urgent cost that you can’t afford to cover without a loan?

If the answer is no, then no, do not take out a payday loan. 

If the answer is yes, then a payday loan could be the way forward. Payday loans are used for emergency and unexpected costs, such as medical or dental bills, or a home repair that can’t wait. Payday loans are a popular way of financing these given how speedily they can be attained. You could receive the funds in your checking account the very same day that you submit your application. 

If you are considering taking out a loan to cover your summer sale spending, think again. Payday loans are infamously prices, with average interest on repayments sitting at 396%. If you need credit for non-urgent spending, think about applying for a credit card, or creating a budget for yourself. 


Do I Need A Payday Loan? 

Payday loans are legal in 37 US states, such as California, Texas and North Carolina


Can I Pay My Loan Back?


Failing to repay your payday loan is not only expensive due to late fees and increased interest, but it can threaten your financial future through damaging your credit record. 

You should have a solid plan for repaying your loan back, plus the applied interest. Normally, borrowers will be expecting  a paycheck that will cover their debts. Other borrowers are in the process of creating a new budget to increase their disposable income. 

If you are not going to be able to repay your loan, don’t take it out. 



Can I Risk Damaging My Credit Score? 


A credit score is a number between 300 and 850 and reflects how reliable a borrower you have been in the past. The higher your score, the better, as this indicates that you have paid off bills and debts promptly and fully previously. 

If your credit score is already low, less than around 600, then be careful with borrowing. As explained above, failing to repay your loan can lower your credit score. If your credit score is already at the weaker end of the scale, you could be in real trouble if it gets worse. This could prevent you securing credit – whether it be another loan or a mortgage – in the future.

See also: Personal Loans For Bad Credit.


Can I Risk Damaging My Credit Score? 

When planning repayments, remember that you pay interest on what you borrowed.


Do I Have More Suitable Alternatives?


  • Credit Union. If you are a member of a credit union already, this could be the best option for you. Credit union loans are cheaper than payday loans and typically more flexible. You may not be able to take out a big loan, but it is worth looking into. If you’re not a member, you could join a credit union in your state. There are over 5.400 credit unions operating in the US as of 2022. 
  • Loan From A Loved One. Over 60% of Americans have offered a loved one financial help in the past (Bankrate), as this is usually flexible and there are less checks before getting your funds. You should keep in mind that if you fail to repay your loved one, you could be damaging a relationship. You should only do this if absolutely necessary. 
  • Cash Advance. This is asking your employer for an early paycheck, and is a common function within larger businesses who hire a large workforce. 
  • Credit Card. If you need a line of credit, but your costs aren’t pressing, you could consider a credit card. These are typically used for shopping and more regular purchases, and bear lower interest than payday loans. Many creditors, such as American Express, offer introductory trials with 0% interest, meaning that borrowing becomes free (for a while)!