A payday loan is a small, short-term loan (usually for $500 or less) that you're expected to repay on your next payday.
Because payday lenders usually only require a government ID, proof of income, and an active checking account, payday loans are easy to qualify for and can provide cash fast. But read the fine print and you'll see they come with extremely high fees and APRs that can exceed 400%.
Numerous states have banned or severely limited payday loans by capping interest rates. In 2020, for example, a Nebraska ballot measure restricted lenders from charging fees, interest or combined rates exceeding 36% annually.
While 36% is higher than the average credit card APR, it's much less than what most payday lenders charge.
What is a payday loan?
A payday loan provides quick cash repaid in a single lump sum (plus fees) when your next paycheck arrives, or within 14 days.
What do you need to qualify for a payday loan?
You typically need:
- A valid government-issued ID
- Proof of income (such as a pay stub)
- An active checking account
You may also need to provide an email address, telephone number and Social Security number.
How much can you borrow with a payday loan?
Most payday lenders will lend $100 to $500, though some states allow up to $1,000. Borrowing the maximum increases the risk that you'll have trouble repaying and be hit with rollover fees.
How fast can you get money with a payday loan?
Many storefront payday lenders provide same-day funding, and some online lenders offer cash within minutes of approval. Most payday lenders don't run a credit check, which speeds up approval.
How payday loans work, step-by-step
1. Application requirements
To apply, you'll need a valid ID, proof of income and an active checking account. Most lenders also require a post-dated check or authorization to debit your bank account automatically.
2. Fees and APRs
Payday lenders typically charge $10 to $30 per $100 borrowed, which can amount to an APR well over 400% for a two-week loan. If you're unable to pay on time, the lender may charge a late fee and your bank may tack on an overdraft fee or non-sufficient funds (NSF) charge.
3. How lenders collect repayment
On your next payday, the lender will automatically withdraw the loan amount and associated fees from the same account the loan was deposited into. If your balance is too low, you may incur bank overdraft fees.
4. What happens if you roll over a payday loan?
A rollover lets you delay repayment by adding a fee that extends your due date. Each rollover adds new charges, which can quickly inflate the amount you owe. Many borrowers end up paying more in rollover fees than they originally borrowed.
What are the risks of a payday loan?
1. Extremely high fees and APRs
- Fees are often $10 to $30 per $100 borrowed.
- That can equal APRs in excess of 400%.
- Some lenders add charges for prepaid debit card disbursements, late payments and rollovers.
2. Automatic withdrawals and overdraft fees
Lenders typically use automatic bank withdrawals to collect payments. If there is insufficient funds in the. account, you may be hit with multiple overdraft fees, sending you further into financial hardship.
3. Rollovers that trap you in debt
If you can’t repay the loan on time, your lender may offer a rollover until your next payday. Each rollover adds more fees, making your balance grow quickly. This debt cycle can make it difficult to escape dependency on payday loans.
4. Credit score damage
While most payday lenders don’t report payments to credit bureaus, unpaid loans can be sent to a collections agency. Collection accounts appear on your reports and can significantly harm your credit score.
5. Legal action and wage garnishment
If you default, the lender may sue to collect the debt. A court judgment could lead to wage garnishment, and the judgment will show up on your credit reports.
What are some alternatives to payday loans?
1. Personal loans
Personal loans typically offer much lower rates and longer repayment periods than payday loans. Oportun's minimum loan amount is just $300 and borrowers have at least 12 months to make full repayment, making it an excellent alternative to a payday lender. If you need more money (or time), Upstart approves loans starting at $1,000 and has payment terms of 36 or 60 months.
Upstart Personal Loans
Annual percentage rate (APR)
6.20% - 35.99%
Loan amounts
$1,000 to $75,000
Terms
36 and 60 months
Credit needed
300 (but may also accept applicants with no credit history)
Origination fee
0% to 12% of the target amount
Early payoff penalty
No
Late fee
5% of the last amount due or $15, whichever is greater
Open to borrowers with no credit history, especially if needing only a small loan.
- Open to borrowers with no credit history
- No early payoff fee
- Same-day funding available
- Loan amounts as small as $300
- May charge an administrative fee of up to 10% of the principal
- Not available in all states
2. Cash advance apps
Cash advance apps like Earnin or MoneyLion offer up to $1,000 in advance of your paycheck, often with no mandatory fees or interest. There are late fees and optional tips, however.
Earnin
Loan amounts
Up to $150 per day and up to $1,000 per pay period, depending on your pay history.
Terms
Repayment (plus any fees and tips) is automatically deducted from a linked bank account on your scheduled payday
Fees
No fee for standard transfers which take 1–2 business days, optional Lightning Speed feature starting at $3.99.
Terms apply.
MoneyLion InstaCash
Loan amounts
Up to $1,000 for RoarMoney℠ customers; up to $500 for all others
Terms
Repayment is automatically deducted from linked bank accounts
Fees
No fee for 1–5 business days; $0.49–$8.99 for instant transfers, depending on disbursement method
Terms apply.
3. Payday alternative loans (PALs)
Credit unions offer PALs up to $2,000 with capped fees, lower APRs (often around 28%), and installment-based repayment. Approval is based more on income and account behavior than credit history.
- Mobility Credit Union offers PALs of up to $800 to applicants with at least 6 months of membership and active direct deposit. There is a set 28% APR and repayment terms range from three to six months.
- Century Federal Credit Union offers up to $1,000 available the same day via ACH deposit. The APR is only 25% and borrowers enjoy repayment terms of up to six months.
Mobility Credit Union Payday Alternative Loans
Loan amounts
Payday alternative loans (PALs) of $200 to $800
Terms
Repayment terms range from three to six months
Fees
$20 application fee and 28% APR
Terms apply.
Century Federal Credit Union payday alterntative loan
Loan amounts
Payday alternative loans (PALs) of up to $1,000
Terms
Repayment terms of up to six months
Fees
$25 application fee and 25% APR
Terms apply.
4. Credit card cash advance
Even with their higher interest rates, credit card cash advances are less expensive than payday loans. Some cards — like the PenFed Platinum Rewards Visa Signature® Card — charge no cash advance fee and offer competitive APRs.
PenFed Platinum Rewards Visa Signature® Card
Rewards
5X points on gas purchases at the pump and electrical vehicle charging stations, 3X points on supermarket purchases, 1X point on all other purchases
Welcome bonus
15,000 points when you spend $1,500 in the first 3 months from account opening
Annual fee
$0
Intro APR
0% introductory APR for 12 months on balance transfers made in the first 90 days after account opening.*
Regular APR
17.99% variable on purchases; 17.99% non-variable on balance transfers
Balance transfer fee
3%
Foreign transaction fee
None
Credit needed
Good/Excellent
Terms apply.
Pros
- High 5X points on gas at the pump and 3X on supermarket purchases
- No bonus category activations
- Good special financing offer on balance transfers
Cons
- 3% balance transfer fee
- Estimated rewards earned after 1 year: $513
- Estimated rewards earned after 5 years: $2,167
Rewards totals incorporate the points earned from the welcome bonus.
*0% introductory APR for 12 months on balance transfers made in the first 90 days after account opening. After that, the APR for the unpaid balance and any new balance transfers will be a non-variable rate of 17.99%. 3% balance transfer fee per transaction. Subject to credit approval. If you take advantage of this balance transfer, you will immediately be charged interest on all purchases made with your credit card unless you pay the entire account balance, including balance transfers, in full each month by the payment due date.
5. Buy Now, Pay Later (BNPL)
If you have sudden expenses you haven't budgeted for, BNPL services like Affirm or Klarna can split them into smaller payments, often with 0% interest if paid on time.
Affirm
Interest rates
0% to 36%
Loan terms
30 days to 5 years
Fees
There are no late fees, but making late payments can affect your ability to get a loan in the future and may also impact your credit score.
Return policy
Customers are only refunded the principal amount, so if you don't have a 0% loan, you won't be refunded for the interest you paid before making the return.
Available merchants
Affirm has more than 358,000 merchants, including Amazon, Peloton, Adidas and Target.
Loan amounts
From $50 to $30,000
Klarna
Interest rates
0% to 29.99%
Credit limit
No predefined spending limit
Loan terms
1 to 24 months
Fees
Late fees up to $35
Available merchants
Accepted at more than 450,000 merchants, including Amazon, Walmart and Target.
6. Payroll advances
Your employer may advance you a portion of your next paycheck, often interest-free. The money is repaid via deductions from future paychecks.
The bottom line
Payday loans offer quick access to cash but come with some of the highest costs of any borrowing option. Their steep fees, short repayment windows and rollover risks can trap you in a cycle of debt. If you need money fast, consider safer alternatives — like personal loans, cash-advance apps, or credit union PALs — before turning to a payday lender.
FAQs
How do payday loans work?
Payday loan lenders provide a lump sum of cash and borrowers agree to repay the balance (plus fees) on their next payday. You may be required to provide a postdated physical check or electronic access to your bank account.
How much can I borrow with a payday loan?
Many lenders cap loans at $500, although you may be able to borrow $1,000 or more, depending on the lender, the size of your paycheck and state regulations.
How quickly can you get money with a payday loan?
Funds are usually available the same day or within 24 hours of approval, which makes payday loans appealing to borrowers who need money quickly.
Will a payday loan affect my credit score?
Most payday lenders don't require a traditional credit check and loans are not reported to the credit bureaus. As a result, taking out a payday loan won't directly impact your credit score. At the same time, on-time repayment won't help improve your score either.
If you default on a payday loan, however, the lender may sell the debt to a collection agency that reports to the credit bureaus. In that case, it would hurt your score.
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