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5 Things You Need to Know About Payday Loans

Payday loans often get a bad rap, but just like any borrowing system, there is a need for quick payments, and they can be very useful if used correctly.

We want to help you understand what a lender of payday loan alternative can offer you and what you need to be aware of before you accept the agreement.

No Guarantor Needed

Most online lenders will ask for a guarantor. These are people with high credit scores who can vouch for you and confirm that you can pay back the loan. This method is designed to produce trust in the lender when borrowers have bad credit.

If the borrower fails to pay, the guarantor steps up and makes payments. Seeing as the guarantor has a good credit history, they are more likely to pay back the debt.

However, this system only works if you know someone who has a good credit history. If you want to keep your finances private, or if you don’t have a financially stable friend or family member who is willing to help you, then you cannot get the loans you need.

Payday loans don’t ask for a guarantor, which means this is one headache that you can avoid. Every payday lender will have a different system or requirement for their loan to be accepted, but most don’t bother with guarantors allowing more people to apply for the loans.

High Fee for Quick Money

Because there are no guarantors, the lender has to make sure they will definitely get their money back. To do this, this is a high fee on the borrowing amount and charges. You can expect to pay back a lot more than the average loan if you need an extension.

Payday loans are designed to give you money straight away but be paid back with your next paycheck. It is meant to have a quick turnaround. Although the price is high, this system can help you if you have an unexpected bill that you didn’t account for, such as a vehicle repair cost.

In other loans, lenders would create profits through monthly interest. Because payday loans aren’t designed to last for more than one month, the lenders cannot get the profits they are used to. This is why the quick loan costs so much.

In a typical payday loan, you may ask for $100 and expect to pay $150 back. This means you have to pay 150% of the original amount. This percentage is unusually high, so be aware of the fee and interest before signing the paperwork.

State Regulations

Each state has its own regulations for payday loans. Some have an interest rate cap, others require a loan length cap, and you may even be limited on the amount you borrow. All of these laws are designed to stop borrowers from getting into large debts that they cannot afford.

Unfortunately, many people forget or fail to manage their payday loans, creating a big debt that takes years or even decades to pay back. This is because you are charged either for every day you borrow the payment or for every day after the first month. Daily charges are extremely hard to bat away, which is why you shouldn’t take a payday loan out for longer than the agreed time frame.

If you are unsure if you can afford a payday loan, you should ask yourself how much the loan is for and if you can pay it back in full with your next paycheck. If the answer is no, don’t get a payday loan.

When you sign up for a payday loan, you can ask what the state regulations are and how the company has accommodated them.

There isn’t just one law that every state has to abide by, so don’t expect them all to work in the same way.

Credit Scores Don’t Matter

Normally lenders will look at a borrower’s credit report before they even consider allowing a loan to go through. To get a good credit score, you need to prove you can borrow money. This creates a paradox for many people, as they cannot get a good credit score to borrow money without borrowing money in the first place.

If you are one of the people stuck in a loop of rejection and no one will allow you to change your credit score, a payday loan can stop the vicious cycle. They don’t look at credit scores and instead give you the loan without hassle. This means they can give you the money you need and allow you to start a credit history at the same time.

If you manage the loan well, this can have a positive effect on your credit score, allowing you to take less expensive loans in the future. However, if you manage the loan poorly, the loop of bad credit will continue.

High Approval Rate

Whenever you apply for a loan, the results get added to your credit history. Being turned down is an instant negative, which makes it harder to get a loan when you try again.

Payday loans very rarely turn someone down. In fact, they are the best loans on the market when it comes to approval rates. This means you don’t have to worry about rejection and how that may taint your credit history when you consider this loan type.

This doesn’t mean that the loan company is haphazardly putting you in a difficult situation that you cannot afford. Like all lenders, they have to evaluate if you pay them back, but they don’t do this by credit scores or guarantors. They instead ask you how much you want to borrow and how much you earn.

If you only earn $200 a month but ask for $300, they will not accept you as you cannot pay the money back with your next paycheck.


With every loan, you need to consider how much they cost you and if you can manage the charges. With payday loans, your main issue will be, “can I pay it back with my next paycheck.” If the answer is yes, then there is nothing you need to worry about.