Where Should I Get Payday Loans Online?

For many consumers, payday loans have long served as a stopgap measure for taking care of emergency expenses. Today, there are many options for obtaining payday loans online, providing what is essentially a cash advance on your paycheck before the next payday.

But payday loans are generally not a good idea regardless whether you are walking into a lender's office or applying online. There are better options.

Why payday loans are a bad idea

Interest rates on payday loans tend be be higher than other types of loans. It's important to note that not all online payday lenders will disclose the interest rate prior to completion of an application.

Within your loan application, there are also terms specific to that lender. These can include clauses against lawsuits, mandatory arbitration clauses and even restrictions on filing for bankruptcy while the loan is being repaid.

A consumer must also keep the bank account from the original loan application open until the loan has been repaid. You may also find a clause that allows for wage assignments, even though this is not legal in all states.

There are other potential costs involved with these loans. For one, if the funds required to pay the loan back are not available in your account on the next payday, you'll be hit with overdraft fees not only from the bank, but also from the lender.

Additionally, there is the added security risk of providing your banking and identity information to an online lender.

The Consumer Federation of America (CFA) cautions against these types of loans. Instead, the CFA encourages shopping for other options, such as small personal loans.

Risks of payday loans online

Simply put, payday loans are expensive due to high finance costs, which make it very difficult to repay them in a timely fashion. For online payday loans, there are also additional risks that should make a consumer cautious before signing on the dotted line.

Online payday lenders typically require that consumers provide proof of income. They may also require the borrower to provide their Social Security number and bank account information.

Approvals are usually completed within roughly 24 hours and funds are typically deposited directly into your bank account within a predefined period. When the lender is approving a potential borrower, they typically give more weight to income than credit score.

By providing the required information, the consumer agrees to have the loan funds deposited directly into their account. On the next payday, the lender can withdraw the borrowed amount plus fees.

However, many lenders just withdraw the finance charge, and automatically renew the loan. The principal, or the amount you owe, is not reduced. And you're typically charged a renewal fee or additional finance charge. Depending on the lender, the loan principal will not be reduced until after several renewals. As a result, the cost of repaying the loan is much more than the original finance charge.

Other things to know

Online payday lenders typically have an upper limit on the size of loan they'll fund -- $1,000, for example. There may also be an age limit -- some lenders may require that you be 21 or older, others don't. You should expect to provide proof of income, a state-issued ID and any additional requests unique to the lender.

Payday loan alternatives

There are many alternatives to payday loans, including but not limited to the following:

• Personal loans for bad credit: Consider lenders like OneMain Financial, Universal Credit, and OppLoans
• Cash advance apps: Apps like Money Lion or Dave can advance a few hundred dollars to your bank account without a hard credit pull. Funds are typically due your next payday but without the hefty fees of payday loans.
• Payday alternative loans (PALs): Available from some credit unions, PALs offer loans up to $2,000 with APRs up to 28% and repayment terms up to one year.
• “Buy now pay later” apps (BNPL): If you'll use the money to make a retail purchase, BNPL can be a good and even interest-free option if you can pay the amount back in 4 biweekly installments over 6 weeks. 
• Friends and family loan: Put it in writing and honor the agreement to maintain positive relationships.
• Government assistance: If you need help paying for utilities, healthcare, food, home repairs, etc., explore what's available to you at the local and federal level. 
• 401(k) $1,000 emergency withdrawal or 401(k) loan: If you have a 401(k), you may be able to withdraw $1,000 without penalty for an emergency expense once per year. You may also be able to take a loan from your 401(k), depending on the amount you have vested.