Payday loans.
What they cost and what to do instead.

How payday loans work

The structure

You borrow $300 and write a postdated check for $345 (the loan plus a $15-per-$100 fee). In two weeks, on your next payday, the lender cashes the check. If you can't cover it, you roll over the loan for another fee.

The cost in APR terms

The rollover trap

Most payday borrowers do not repay in two weeks. CFPB research found the average borrower takes out 8 payday loans per year, paying more in fees than the original loan amount verify×DON'T TRUST, VERIFYClaim: CFPB research found the average payday borrower takes out roughly 8 to 10 loans per year and ends up paying more in fees than the original principal.Verify at: CFPB Data Point: Payday Lending ↗CFPB analyzed millions of payday loan transactions. The "trapped borrower" finding has been replicated across multiple state-level studies.. A $300 loan rolled over 8 times: $360 in fees on the original $300. Total paid: $660 for $300 borrowed.

Alternatives, in order of preference

1. Credit Union Payday Alternative Loans (PALs)

Federal credit unions offer Payday Alternative Loans: $200 to $1,000, 1 to 6 month terms, maximum 28% APR verify×DON'T TRUST, VERIFYClaim: NCUA-regulated Payday Alternative Loans (PALs) cap APR at 28% with terms of 1 to 12 months.Verify at: NCUA Payday Alternative Loans rule ↗PAL I caps at $1,000 for 1 to 6 months; PAL II goes up to $2,000 with 1 to 12 month terms. Both have a 28% APR ceiling.. Requires credit union membership; most allow anyone in a geographic area to join.

2. Employer paycheck advances or earned-wage access

Many employers offer paycheck advances or early wage access. Ask HR; the cost is often zero or a small flat fee. Apps like Earnin, Dave, and DailyPay provide similar services for $0 to $5 per advance.

3. Negotiate a bill extension

If the payday loan is to pay a bill, call the biller first. Utilities, landlords, and medical billers often grant 30-day extensions with no fee. Always worth trying before taking on 400% interest debt.

4. Personal loan from a bank or credit union

If you have any credit history, a personal loan is dramatically cheaper than a payday loan. Even a bad-credit personal loan at 35% APR is far cheaper than a payday loan at 391% APR.

5. Credit card cash advance

Credit card cash advances have fees and higher APRs than purchases (typically 25 to 29%). Even at 29%, dramatically cheaper than a payday loan. A last resort among credit options, but still better than payday.

6. Community resources

• 211 (dial or text 211): connects to local emergency financial assistance.
• Local churches and community organizations often have emergency hardship funds.
• Community Action Agencies offer utility assistance, rent assistance, and emergency loans.

If you already have a payday loan

Extended payment plans

Many states require payday lenders to offer extended payment plans (EPP) at no additional cost if requested before the due date. Ask your lender specifically: "I need to use the extended payment plan. Can you explain my options?"

Stop the rollover cycle

Each rollover adds another fee. One payoff strategy: take a personal loan or credit-union PAL to pay off the payday loan entirely, then pay off the personal loan at normal rates.

Filing a complaint

If a lender is violating your state's laws or using illegal collection practices, file with the CFPB at consumerfinance.gov/complaint and your state attorney general.

What this changes for tomorrow

• Find a federal credit union you can join. Membership is the gateway to the PAL alternative if a future cash crunch arrives.
• Build the emergency fund. Even $500 to $1,000 saved removes the situation that pushes people to payday loans in the first place.
• Save 211 in your phone contacts. The number works for emergency financial assistance referrals 24/7.

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