Payday Loans: The Good, The Bad, and When to Use Them

Payday loans are short-term loans that can usually be acquired easily and quickly for those that qualify. With a payday loan, you can generally borrow up to five or ten thousand dollars; perfect for covering short-term unexpected emergency expenses if you don’t have enough in your savings account or good credit history. Here’s your complete guide on payday loans and what they have to offer; along with drawbacks, and when’s the best time to utilize one.

What Are They?

A payday loan operates on the premise that you’ll pay back the loan in its entirety upon receiving your next paycheck; meaning you usually only have a few weeks’ time to pay back the loan. Some lenders even require you to write a post-dated check for the repayment date; which will be cashed that day. This is usually the day your paycheck is direct-deposited or added to your bank account.

Payday loans are popular options for those without good credit or without enough savings to cover sudden unexpected expenses. In fact, a large percentage of adults in the United States use payday loans due to the convenience – there are even options to obtain easy payday loans online so you don’t even need to go to a brick-and-mortar location.

The Good

What are the good things about payday loans? For starters, you’ll only need a few things to apply for one: your personal identification, proof of employment, a checking account, and any other specific requirements the lender has. There is usually no minimum credit score required, which makes payday loans much more accessible for those people with low credit scores.

Payday loans also have a short and concise application process, which allows for a quick turnaround for funds. When you’re approved for one of these loans, you can receive the funds you need in as little as one business day after approval. Convenience and speed are what drive many people to seek out payday loans.

You’ll simply provide the information they ask for; no more, no less. For those Americans who have no credit score (which is around 11%) or those with poor credit history, payday loans can be a good option.

The Bad 

Payday loans often come with high-interest annual percentage rates; often in the 300-400% range. This APR can add up quickly when you’re borrowing even the smallest amounts. Say you needed $500; that 400% interest rate, along with any fees charged by the lender, can make your original balance closer to $600 when it comes time to repay your loan.

Another drawback of payday loans is that you normally only get about 14 days to repay the amount; or in other words, on your next pay date. Traditional loans stretch the cost of borrowed amounts out over months or years; making the monthly payments a little easier to manage. With a payday loan, you’re required to pay back the loan, interest, and fees in full by the agreed-upon date.

Should repayment of the loan overdraw your checking account, or you write a check that bounces, the lender will likely charge you extra fees on top of your bank’s NSF charges. This can skyrocket the overall cost of acquiring your funding and make it an impractical decision. Be sure to only borrow what you know you can afford on your next paycheck!

When to Use Them

Payday loans are best reserved for emergency financial situations. Since turnaround time can be quick once approved, they’re perfect for when unexpected expenses arise, such as car repairs or surprise medical expenses. Just remember that you only have a short time to repay the loan in full, plus any other charges and interest that accompany the principal balance. Don’t make a habit of borrowing with payday loans for minor expenses or personal spending, as the costs can add up quickly and drive you further into debt.


Overall, payday loans are a good idea when you absolutely need them. Making a habit of borrowing money with high-interest rates and short repayment terms is a good way to slip into debt. If you’re already struggling on a month-to-month basis, you might want to consider other funding before applying for a payday loan.