The difference between payday loans providers and other creditors

More than twelve million people take out payday loans each year, spending more than seven billion dollars a year in the process. Payday loans differ in many ways from regular loans and other lending options, and have many advantages that should be taken into consideration as well. In this article, we’re going to expose some of the benefits of payday loans, what you need to be aware about when you take a payday loan and the main differences between payday loans and other types of financial instruments.

How are payday loans and other loans different?

Payday loans allow you to get a fast loan when you don’t have anything else to borrow against, including assets. Their biggest benefit is giving you cash quickly, when any other type of loan takes more time for approval. This can be invaluable if you need cash now to pay for unexpected car repairs or an impounded vehicle. No other lending option short of a family member or friend handing you cash is this fast.

payday loans differenceAt 12 Months Loans Bad Credit you can apply for a payday loan online. This is an option even at 2 in the morning or on the weekend. Some financial institutions require you to apply for a loan in person while others accept online applications but won’t approve them until after a human has reviewed your application. There is no waiting period like when a credit card is mailed to you after your application is approved. Those payday loans applied for online will usually be paid out of your bank account, with your debit card information kept as a backup in case the payment processor rejects a withdrawal from the bank account.

Usually no credit check by 3 bureaus and relatively limited documentation payday lenders require make them ideal for those whose credit history or gray residency status make them otherwise unable to get a loan. Payday loans are almost the only option available to you for a short term loan if you’ve recently gone through a bankruptcy.

Most payday loans don’t depend on your credit score, and their interest rate cannot suddenly spike because you were late on a bill. If you have a good payment history with the lender, they will consider raising the loan amount regardless of your payment history on any other type of bill. Payday lenders are willing to loan you small amounts, such as loaning you $200 on a $250 paycheck. Almost all payday loans are less than a thousand dollars.

Most banks won’t even consider offering a loan this small, and it takes time and a fair bit of savvy to try to raise such an amount through an online appeal. You don’t have to try to craft a sob story to get several hundred or a thousand dollars loaned or gifted to you online. Nor do you have to beg family or friends for the money. And payday loans are an option when you have nothing to pawn or sell to raise cash. You also don’t face the worry of pawning your wedding ring to pay the rent and hoping you have enough money next pay period to buy it back.

Considerations before you take out a payday loan

Some of the issues associated with payday loans can be mitigated when you know the rules and regulations regarding this type of loan. For example, make certain you are paid before the payday loan is due. And if there are deductions like tax withholding, child support or wage garnishments that result in your payment being less than the loan amount, you’ll have to make a partial payment and extend the payday loan with very costly fees.

You will have to pay the payday lender, since they require a pre-authorized check for the amount due as collateral for their loan. Consider a cash advance from your employer before you take out a payday loan, though few employers allow this. Note that if you fail to have enough money deposited in your checking account to cover the pre-authorized check given as collateral for the payday loan, you are the one responsible for the overdraft fees and bounced check charges.

Please also note that payday loans have been banned in certain states. Whether or not you can apply for a payday loan online when your state has outlawed them is a gray area. However, if you do apply and get a cash advance on your paycheck, your state will allow them to pursue you for the outstanding balance as long as they remain within the rules of the Federal Fair Debt Collection Practices Act.

Depending on where you live, your state may put limits on payday loans. For example, Missouri limits payday loan renewals to six. This means you may have to go to a different payday lender to take out another loan to pay off the first one.

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Interest Rates

Another difference between payday loans and other types of loans are the interest rates and fees you pay if you have to extend the loan. Payday lenders charge a little bit more compared to conventional bank loans. The interest rate is similar to that of high interest credit cards, 20%. However, the credit card’s interest rate is around 20% per year whereas a payday loan is closer to 20% per loan – which may be a two or four week payment cycle. This adds up to 300% – 600% per year if you have to roll over the loan to your next paycheck over and over again. If you are able to pay off the loan in full, though, it is cheaper than the fees and interest you will pay on a cash advance on a credit card that you slowly pay down over time.


Payday loans are one of the few ways to quickly raise cash without selling beloved items or begging family and friends for a loan. Payday loans are available even if you have bad credit or no documentation. With some planning, a payday loan company can be a reasonable lender of last resort.