Although payday loans are a type of credit that most borrowers should avoid, there are some cases in which this type of loan is actually less costly than other alternatives. Below are a few circumstances in which taking out a payday loan is the better choice.
1. A Payday Loan Costs Less Than a Bounced Check
In a financial crunch, some people write checks even though they know they don't have enough money in their accounts. Since many financial institutions are raising overdraft fees, it may be cheaper to choose a payday loan instead of incurring fees. Overdraft fees can quickly add up, particularly if you've written multiple checks. In this case, it may be wise to opt for the payday loan.
2. A Payday Loan Can Be Cheaper Than Fines or Penalties
If you're must pay a ticket or court costs, and you don't have the funds you need, it might be cheaper to take out a payday loan. Failure to pay court costs and other fines can create more problems in the long run. If you can retain your driver's license or avoid additional fines by paying the money you owe immediately, this is always a better option. If you know that you are going to need payday loans more than once, certain payday loan services will lower your interest rate if you have a history of paying on time, so that can save you some money on your loan and be better than taking on fines or penalties.
3. A Payday Loan is Often Cheaper Than Losing Utility Services
It can be very expensive to re-establish utility service if it's disconnected for non-payment. In this case, a payday loan is a viable solution. It's something that should only happen once, though. If you find yourself turning to a payday loan on a regular basis, you're not using this option wisely. If you constantly struggle to pay utility bills, it may be a good idea to reach out to a charitable organization or find another means of obtaining the necessary funds.
Payday loans aren't cheap, but they can be the cheaper alternative from time to time. It's important to avoid becoming trapped in a payday loan cycle in which you often use loans on a regular basis or take out a new loan to pay off previous loans. If you use a payday loan responsibly, it can make life easier, but if you don't, the financial damage can be substantial.
Best Payday Loan Services
If you are in the market for a reliable payday loan service, there are a couple you can choose from, including services like OppLoans that are trying to change the way we think about payday loans. Here's a good OppLoans review.
Here are our favorite payday loan services. Both reward you for paying on time with lower interest rates and higher loans, and both are trusted payday loan service.
Best for Instant Payday Loans: LendUp
Overview: LendUp is a very new payday loan service, starting in 2012, unlike other more popular services like CashNetUSA. They currently only operate in 15 states but are continuing to expand. LendUp is a great service for those who plan on taking out several payday loans, since they offer a rewards system that allows you to take out larger loans at a lower interest rate over time. Another great service that LendUp offers that other payday loan sites don't is instant deposit; you can get your loan in 15 minutes or less.
Price: $17 per $100 borrowed
APR for loan: 36-406 percent (depending on credit)
Maximum amount of loan: $1,000 (although you have to start with lower loans, like $250, and work your way up by paying on time.)
Maximum timeframe of loan: 30 days
Requirements: You need proof of income, a checking account and your paycheck schedule, as well as typical identity info like social security number and photo ID. LendUp does not require a credit check.
Features: Like most payday loan sites, you can get direct deposit straight to your checking account. LendUp offers same-day and next-day deposits, as well as automatic withdrawals for paying the loan back. The company also offers payment extensions if you can't make a payment date and no penalty for paying off your loan early, if you want to save on interest.
Customer service: LendUp offers telephone and email support, as well as helpful FAQs, but does not offer an online chat function.
Best for Larger Payday Loans: Rise
Overview: Rise is even newer than LendUp, starting in 2013. Rise is not only trying to change the way payday loans work, but also the financial literacy of their clients. They also offer a rewards system that can lower your APR over time, but you can gain rewards for paying on time as well as taking financial courses and signing up for their credit score program. This commitment to education shows that they truly care about the financial well-being of their customers.
Price: $2-14 per $100 borrowed
APR for loan: 125-363.86 percent (depending on credit)
Maximum amount of loan: $5,000
Maximum timeframe of loan: 14 days
Requirements: Much like LendUp, you will need proof of income, a checking account and your paycheck schedule, as well as typical identity info like social security number and photo ID. The difference is that Rise DOES require a credit check to be approved.
Features: Rise offers the same kind of features that LendUp does, including direct deposit into your checking account, automatic withdrawals for paying the loan back, payment extensions and no penalty for early payoff. They do offer next-day deposits but not same-day deposits.
Customer service: Rise offers the same telephone and email support, helpful FAQs, but also does not offer an online chat function.