Have you ever heard the phrase, "the easiest option isn’t always the best"? No credit checks and no collateral could make getting a payday loan easy, but it may not be your best option for borrowing money.¹ Let’s look at a few things you should know:

First off, what are payday loans?

They are short-term, high-interest cash loans generally for less than $1,000. The appeal is that if you need fast cash before your next payday, these loans can fill the gap. All they require is proof of employment and an active bank account.²

So, what’s the big deal? On the surface, payday loans are a solution when you need money in a pinch. However, after you read the fine print, these loans might not be as consumer-friendly as they seem.

Risks of payday loans

Payday lending is prohibited or restricted in over 40 states due to the potential dangers to consumers. Some risks to be aware of include:

• Paying high interest and fees - The average annual-percentage rate (APR) for a two-week payday loan is between 390%-780%.³Loans with shorter terms can be higher.⁴ As for fees, some lenders charge up to $15-$30 for each $100 that you borrow.⁵
• Falling behind on regular monthly expenses - With such high costs to borrow, it could make it hard to meet regular monthly expenses such as house payments, utilities, groceries and more.
• Getting deeper into debt - If you can’t pay the loan off by its due date, the fees could increase and add to the amount you owe. A study on payday loans showed that the average borrower is in debt for five months of the year, spending an average of $520 in fees to repeatedly borrow $375.⁶

Other ways to get the funds you need

Payday loans aren’t the only option. Here are some alternatives to consider:

• Tap into your emergency fund - Times like these are why you have an emergency fund. If you don’t have enough to cover the costs, think about combining these funds with another alternative.
• Apply for a personal loan - Personal loans can offer same-day funds, monthly payments and lower interest rates compared to payday loans. Check out these details to learn more.
• Use a credit card - Adding debt to a credit card is not ideal, but the interest rates are probably lower and you should have more than two weeks to pay it off.
• Talk to your creditor - If you have a relationship with your creditor, call and ask for an extension. By taking this approach and explaining your situation, they could allow you more time to pay off the debt.

The choice is yours

If you need to borrow money, the quick and easy route might look attractive. But if you have options, and time to compare them all, be patient and choose what’s best for you.

1. Payday Loan Info. “How Payday Loans Work.” Paydayloaninfo.org. http://www.paydayloaninfo.org/facts (accessed May 8, 2018).
2. Payday Loan Info. “How Payday Loans Work.” Paydayloaninfo.org.
3. Payday Loan Info. “How Payday Loans Work.” Paydayloaninfo.org.
4. Payday Loan Info. “How Payday Loans Work.” Paydayloaninfo.org.
5. Payday Loan Info. “How Payday Loans Work.” Paydayloaninfo.org.
6. The Pew Charitable Trusts. “Payday Loan Facts and the CFPB’s Impact.” Pewtrusts.org. http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2016/01/payday-loan-facts-and-the-cfpbs-impact (accessed May 8, 2018).