Straight answer
Why are payday loans so risky, and what can I use instead?
A payday loan is a short-term, high-cost loan, usually for $500 or less, that's due on your next payday, typically in two to four weeks. Fees often run $10 to $30 for every $100 you borrow. A typical $15-per-$100 fee on a two-week loan works out to an annual percentage rate of almost 400%. And payday lenders generally don't check whether you can repay while still covering your other bills, which is how a short loan turns into a long, expensive one.
How does the cost add up?
Borrow $300 at a $15-per-$100 fee and you owe $345 two weeks later. If you can't pay and the lender lets you roll the loan over, you pay another $45 fee and still owe the original $345. That's $90 in fees to borrow $300 for a month.
What can I try instead?
Ask your employer, a nonprofit or a community group about an advance or emergency help, or ask family or friends. Your bank or credit union may have less expensive options, especially if you have a stable history with it, and a credit card may cost less. You can also ask the creditor or collector you owe to accept a smaller payment.
I already have a payday loan I can't repay. What now?
Contact the lender right away and ask for an extended repayment plan, which lets you repay in smaller installments over a longer time. Whether it's offered depends on your state's law or the lender's policy. If that doesn't work, a credit counselor or a legal aid attorney can help, and servicemembers can contact their local JAG office.
Are servicemembers protected?
Yes. The Military Lending Act caps the Military Annual Percentage Rate on these loans at 36% for covered servicemembers and their dependents.
- CFPB — What is a payday loan?
- CFPB — What are the costs and fees for a payday loan?
- CFPB — Should I get a payday loan if I need money now?
- CFPB — What can I do if I can't repay my payday loan?
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