Are Payday Loans Harder or Easier to Pay Back?

Payday loans seem like an easy way to get quick cash when you’re in a financial pinch. The convenience of being able to walk into a storefront lender or apply online in minutes makes them an appealing option when you need money fast. But are payday loans really easier to pay back than other types of loans or credit options? The answer is complicated.

How Do Payday Loans Work?

Payday loans are a short-term loan with high interest rates that you pay back when you get paid again. You give the lender a check with a future date on it or permission to take the loan amount plus a fee out of your bank account. In most cases, the fees on payday loans add up to an APR of 400% or more.

When your next payday arrives, the lender will cash your check or debit your account to collect the amount due. The repayment period is usually two to four weeks.

Payday lenders don’t do credit checks or assess your ability to repay. As long as you have a bank account and steady income you can generally qualify for a payday loan of a few hundred dollars.

Factors That Make Payday Loans Harder to Repay

While accessing payday loan funds is easy, repaying them can be challenging for several reasons:

• Cash advance fees are high; they can be between $10 and $30 for every $100 borrowed. This means APRs in the triple digits, which means the real cost of the loan is much higher than the amount borrowed.

• Terms for paying back the loan are short: payday loans are usually due in full on your next pay date. Most people can’t come up with the full amount they need to pay back the loan in two weeks or a month.

• Loan flipping: When the due date arrives and you can’t afford to repay in full, you can pay the fee to roll over or “flip” the loan into a new one. This leads to a cycle of debt that causes fees and interest to accumulate rapidly.

• Lack of underwriting: Payday lenders don’t check to see if you can actually pay back the loan. They may lend you more than your budget can handle.

• Single payment structure: Repaying the entire lump sum at once can be more difficult than making installment payments over time.

• Access to funds: Because payday lenders have access to your bank account, they can continue attempting to debit the amount due, triggering overdraft fees if you don’t have sufficient funds.

Factors That Make Payday Loans Easier to Repay

On the other hand there are some characteristics that can make payday loans easier to repay than other types of debt

• Small dollar amounts: Payday loans are typically for a few hundred dollars at most. The smaller balance due may be more manageable than higher sums.

• Short terms: The two- to four-week repayment period limits how much interest can accrue.

• Single payment: You only have one due date to remember that aligns with your pay schedule.

• No penalties for early repayment: You can repay a payday loan early with no prepayment penalties.

• Quick access to cash The funds are deposited into your account quickly after approval, often by the next business day Fast access to cash can help you avoid missed bill payments or checks bouncing

Alternatives to Payday Loans

While payday loans do have some advantages, their high cost makes them a very expensive way to borrow. Here are some alternatives that may be easier to repay:

• Payment extensions: Contact your creditors directly to request more time to pay bills. Many will work with consumers who are short on cash.

• Credit cards: Balance transfer or low-interest credit cards allow you to pay off debt over time with lower interest.

• Side jobs: Making money on the side via a side hustle or part-time job may help you cover expenses without borrowing.

• Loans from family/friends: People close to you might be willing to lend money without interest or provide more flexible repayment terms.

• Traditional loans: Personal loans from banks, credit unions, and online lenders offer lower rates and longer repayment periods.

• Paycheck advances: Some employers provide paycheck advances allowing access to earned wages before payday.

• Debt management plans: Nonprofit credit counseling agencies can set up DMPs that consolidate debt into one monthly payment.

The Bottom Line

Ultimately, payday loans can be deceiving. Their convenience and quick cash makes repayment seem easy. But when it comes time to pay, the lump sum due combined with high fees makes them difficult for most borrowers to pay off in such a short timeline. For this reason, payday loans are riskier and harder to repay than many other borrowing options.