August 15, 2019 | Posted in:

Are Pay Day Loans Ever a Good Idea?

Your daredevil kid breaks an arm, the car overheats and the house roof starts leaking. You need cash right away. Should you consider a payday loan?

Payday Loan Basics

Payday loans (sometimes called cash advance or deferred deposit loans) can provide short-term financing to help cover immediate needs. You can usually apply online or at a local storefront.

Here’s how it typically works: You write the lender a post-dated check for the loan amount plus a borrowing fee. The lender hands you a check and agrees to hold your post-dated check until next payday. When payday rolls around, the lender deposits the post-dated check or you extend the loan for an additional fee.

If you apply online, you’ll often be approved in minutes without filling out paperwork. In a few hours or days, loan proceeds will be deposited directly into your bank account.

Are payday loans a good deal?


It depends. Before you apply, consider three disadvantages:

  • Borrowing costs are high. The interest rate on a two-week loan is typically 15-30 percent. Extend the loan for a year, and you may be paying more than 300 percent in interest.
  • Some lenders are unscrupulous. Loan shops are popping up in many neighborhoods, and crooks sometimes use them to engage in identity theft.
  • Root problems are not addressed. Habitually relying on payday loans can exacerbate poor financial habits.

Before an emergency strikes, take time to explore alternatives. Cut back on unnecessary expenses. Ask family and friends for help. Build an emergency fund by working a second job or perhaps selling good-condition items online.

“A general rule of thumb for an emergency fund is 3-6 months of living expenses.” — Rich Middleton, CPA

Bottom line? If you must, use high-interest payday loans as a last resort. Speak with an Alloy Silverstein CPA about your challenges and goals to get a plan in place.


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