Credit Information and Personal Finance Resources | Credit One Bank

Credit One CentralTM

Explore ways to manage your credit and finances with Credit One Central. These informational articles and resources can help guide you in your everyday life.

Payday Loans: The Hard Truth About Easy Cash

Payday Loans: The Hard Truth About Easy Cash

If you haven’t been inside one, you’ve almost certainly passed by one. They’re those non-descript buildings typically adorned with brightly colored awnings or neon signs proclaiming “PAYDAY LOANS” to the world. You’ll find them in most towns, large and small, in states where they’re legal. In fact, according to a report by NBC news, there are now more payday lenders in the United States than McDonalds or Starbucks!

But as friendly and inviting as those colorful storefronts look, taking on a payday loan could quickly turn into a frightening scenario if you’re not sure what you’re getting into.

There are now more payday lenders in the United States than McDonalds or Starbucks!

A BRIDGE BETWEEN PAYCHECKS

A payday loan is essentially a short-term, high-interest loan designed to give you enough cash to get by before receiving your next paycheck, typically a two-week period. These loans are mostly for smaller amounts, usually less than $500, with the average payday loan being $430, according to the Center for Financial Services Innovation.

Just how high are the interest rates charged? According to the Consumer Financial Protection Bureau, a typical two-week payday loan with a fee of $15 for every $100 borrowed equates to an annual percentage rate of almost 400%! And that’s “typical”; actual interest rates can be even higher and vary from state to state.

HOW THEY WORK

To get a payday loan, you fill out some paperwork, providing the lender with certain personal and financial information. How much you can borrow is based on your income and other factors—but your credit typically is not one of them, as most payday lenders don’t do a credit check. You then either write the lender a post-dated check for the loan amount plus interest and any other fees, or you give them access to your bank account and permission to electronically withdraw that amount on the loan’s due date. The lender then gives you cash or deposits the loan into your bank account. When the due date arrives, they cash your check or withdraw the money from your account.

If you don’t have enough money in your account to cover the loan amount when it comes due, you may be given the option to just pay a fee or only the interest due and “roll over” the loan, which extends the term of the loan and tacks on more interest. It does nothing, however, to reduce the principal owed. Or you may need to take out another payday loan to pay off the first one. Both of these options can trigger a vicious cycle of snowballing debt from which it can be very difficult to escape.

WHO TAKES OUT PAYDAY LOANS?

A study by the Pew Charitable Trusts found that approximately 12 million Americans take out payday loans each year, costing $9 billion in fees. The average borrower is in debt five months of the year and spends $520 in fees to repeatedly borrow $375. That same report found that the average payday borrower earns roughly $30,000 per year and that 58% of those who take out payday loans have difficulties covering monthly expenses. Seven out of 10 borrowers use payday loans for regular, recurring expenses, not just for emergencies.

What’s particularly alarming is that the average payday loan consumes 36% of a borrower’s gross paycheck, yet most borrowers can afford to devote no more than 5% of their checks to pay back the loan. As a result, the Consumer Financial Bureau found that 80% of payday loans are renewed or followed up with another payday loan within 14 days of taking out the original loan.

Approximately 12 million Americans take out payday loans each year, costing $9 billion in fees. The average borrower is in debt for five months of the year and spends $520 in fees to repeatedly borrow $375.

DO PAYDAY LOANS AFFECT YOUR CREDIT?

Since payday loans do not typically require a credit check, most payday lenders don’t do a “hard inquiry” of your credit report, which can lower your credit score by a few points. Payday lenders also generally do not report the loan to the three major credit reporting agencies.

However, if you fail to pay the loan back in full and on time, a payday loan could adversely affect your credit. If the lender sues you for the outstanding balance, or they sell your loan to a collection agency, either of these actions may be reflected on your credit report and could negatively impact your credit score.

WEIGHING THE PROS AND CONS

To be fair, there wouldn’t be so many payday lenders if they weren’t meeting a need and there was no market for their services. If you need quick, easy cash immediately—say, for a medical emergency or an urgent car repair—a payday loan may be a viable option. But you should first carefully consider the advantages and disadvantages of getting one.

Payday Loan Pros:

  • You can get money quickly and conveniently
  • You don’t have to have good credit to get the loan
  • It will most likely not count as a hard inquiry on your credit report
  • It can provide a short-term solution for meeting your financial obligations

Payday Loan Cons:

  • Because they’re easy to get, you may be tempted to use them when there are better alternatives
  • They are one of the most expensive ways to borrow money
  • Fees and interest can quickly snowball, trapping you in a perpetual cycle of debt
  • If your check bounces, you will likely be charged additional fees by the lender and overdraft fees by your bank
  • If you default on a payday loan, you may be sued or pursued by a collection agency, both of which may show up on your credit report
How much you can borrow is based on your income and other factors—but your credit typically is not one of them, as most payday lenders don’t do a credit check.

CONSIDER OTHER ALTERNATIVES

A payday loan can be a quick solution, but it’s rarely the best one. Before rushing into applying for one of these loans, take a moment to explore other options, including:

  1. Putting off a payment or purchase until you have the funds, if it’s not a true emergency.

  2. Asking a family member or friend to lend you money.

  3. Requesting a payday advance from your employer.

  4. Applying for a lower-interest personal loan or line of credit from a bank.

  5. Trying to negotiate a payment plan with your creditors.

  6. If you have a credit card, using it to pay your expenses—or getting a cash advance with your card if you need cash. Any interest or fees you’ll pay using a credit card are a drop in the bucket compared to the triple-digit interest you could end up paying on a payday loan.

  7. Applying for a credit card and using it to help get you through your financial emergency.

If none of these are a possibility, and it’s a true financial emergency, then taking out a payday loan may, in fact, be your only real option. Just be sure you understand all the terms of the loan and make every effort to pay it back in full by the due date so you don’t get caught in a perpetual cycle of additional fees, more interest, and taking out additional payday loans to cover your growing debt.

But you don’t want to make taking out payday loans your go-to solution for paying your bills. If it is, it’s probably time to make some changes in your behavior rather than continually relying on a temporary solution with the potential to make matters even worse.

Seven out of 10 borrowers use payday loans for regular, recurring expenses, not just for emergencies.

 

« Return
This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.
Credit One Bank Testimonials

Customer Testimonials & Success Stories

Looking to reach your financial goals? See how Credit One Bank helps people purchase a house or car, handle emergencies and build their credit.

Read More

See If You Pre-Qualify Today

With a Credit One Bank Platinum Visa®, you'll earn 1% cash back on eligible purchases, terms apply, and receive many benefits like free online access to your credit score and $0 Fraud Liability.

In less than 60 seconds, find the card that's right for you!



Credit One Bank Credit Card

 Terms of Use 

Credit One Bank maintains our various websites (hereinafter referred to as "website") as a service to our customers and visitors in order to provide information about products and services and to facilitate communication with us. We require that all customers and visitors to our website adhere to these Terms of Use. By accessing our website and any of its pages, you indicate your acknowledgement and acceptance of the Terms of Use set forth herein without limitation or qualification. We may revise the Terms of Use at any time by updating this posting. You should therefore visit this posting to review the Terms of Use from time-to-time as you visit the website. For the purposes of these Terms of Use, references to Credit One Bank include its affiliates, directors and employees.

COPYRIGHT - The information and materials contained in the website, including but not limited to text and images herein (excluding certain images licensed from third parties) and their arrangement are © Copyright 2015 by Credit One Bank. The information and materials contained in the website may not be copied, displayed, distributed, licensed, modified, published, sold, used to create derivative work or otherwise used for public or commercial purposes without the express written permission of Credit One Bank.

LIMITATION OF LIABILITY - We use our best efforts to include accurate and up-to-date information and materials on the website, however, information and materials on the website are provided "as is" without any warranty of any kind, either express or implied, including but not limited to the implied warranties of merchantability, fitness for a particular purpose and non-infringement. Furthermore, we make no representations as to the accuracy or completeness of the information. The information and materials on the website may include technical inaccuracies or typographical errors. From time-to-time we may amend, change, add, delete, update or alter the information and/or materials contained in the website, including information regarding the products and services described or offered on the website, without notice. We assume no liability for any errors or omissions in the information or materials contained within the website and expressly disclaim any responsibility to update the information or materials contained within the website. By using the website, you acknowledge that we specifically disclaim any liability for any direct, indirect, special, unsolicited or consequential damages, losses or expenses arising out of your access to or use of the website, even if we have been advised of the possibility of such damages, including liability associated with any viruses or software which may impact a user's equipment.

GOVERNING LAW - You agree that your use of the website shall be governed by all applicable Federal laws and the law of the state of Nevada.

INFORMATION SUBMISSIONS - All information and materials (including but not limited to feedback data, documents, questions, comments, and suggestions) you submit to us via the website or email shall be deemed to be the property of Credit One Bank and may be used by us in a manner consistent with our Privacy Policy. We shall be free to reproduce, use, disclose, exhibit, display, transform, create derivative works and distribute this information and materials to others without limitation. Furthermore, we shall be free to use any ideas, concepts, know-how or techniques contained in such information or materials for any purpose whatsoever, including but not limited to developing, manufacturing and marketing purposes. Application information submitted to us shall be treated confidentially to the extent required by applicable law or as disclosed in the application and/or supporting materials.

ADVERTISING DISCLOSURE AND LINKS TO OTHER WEBSITES - We do not provide, endorse, nor guarantee any third-party product, service, information, or recommendation available through links from this website. The third parties providing products and services available through this website are not affiliated with us and are solely responsible for their products, services, information, recommendations, and all other content on their websites. We shall not be held liable for any third party's failure with regard to such advertised products, services, and benefits. Many of these advertised products and services are not FDIC insured, nor bank guaranteed. By responding to offers advertised on this website, you may be communicating information about yourself to the company that provides such product or services - for example, that you are a Credit One Bank customer. Please be aware that these third parties may have a different privacy policy than ours. Their website(s) may also provide less security than ours. We encourage you to check individual offers, products, and services to become familiar with any applicable restrictions or conditions.

×
 Security & Fraud  

We are committed to protecting the security of your personal information. We list some activities below that we perform in order to safeguard your data and some tips that you can follow to protect your security.

What We Do:

  • We employ industry-proven standards and technologies to protect information in our computing environment.
  • We protect our systems and networks from the Internet with Firewall systems.
  • We use 128-bit SSL encryption technology to protect sensitive information that is transmitted over the Internet.
  • We maintain a Global Digital Certificate signed by Verisign® that assures you are, in fact, communicating directly with Credit One Bank.
  • We control access to your information inside our company by limiting employee access to systems and data.

What You Should Do:

  • Protect your Username and Password. Avoid choosing easily guessed words or numbers. Avoid writing your Sign In information in a place where others can view it.
  • Use the "Sign Out" button to Sign Out from Online Account Access upon completion of your session and close your browser.
  • Do not use email for account-specific questions. Email is not normally encrypted and your account information could be intercepted.
  • Review your statement information regularly for unauthorized transactions.

Alerts Regarding Phishing and Web-Spoofing:

  • Phishing is an Internet scam (spoof) in the form of an email or pop-up box. The emails and pop-ups link to sites that look like well-known legitimate businesses and ask you to provide and confirm personal, financial, or password information.
  • Legitimate businesses do not ask for this information unless you initiate a request for a service. Please DO NOT RESPOND to these emails requesting personal identity, accounts or password information.
  • Scam emails often contain misspelled words, poor grammar, awkward or unprofessional writing and typos.
  • Be suspicious of urgent or alarming appeals that request security information.

Fraud Alerts:

  • Credit One Fraud Alerts messages are provided to you at no cost. You will not be charged for alerts received.
  • Message frequency varies, as they are only sent when there is suspicion of fraud.
  • Mobile carriers are not liable for delayed or undelivered messages.
  • For help send HELP to 89283.
  • Send STOP to 89283 to end future fraud alert messages.
  • For support contact us at 1-877-825-3242.

To learn other ways to avoid email scams and deal with deceptive spam visit the Federal Trade Commission site at www.ftc.gov/spam

×

You are leaving CreditOneBank.com

If you the 'Continue' button, you will be directed to a third-party website unaffiliated with Credit One Bank, which may offer a different privacy policy and level of security. Credit One Bank is not responsible or liable for, and does not endorse or guarantee, any products, services, information or recommendations that are offered or expressed on other websites.

the 'Return to CreditOneBank.com' button to return to the previous page or 'Continue' to proceed to the third-party website.

Return to CreditOneBank.com Continue