6 Myths About Payday Loans

Payday Loans: Separating Myths From Facts

Payday loans, also called cash advances, are a convenient option when you need quick cash for emergencies and other expenses between paychecks. They're easy to access, require no collateral, and you don't need good credit to qualify.

Although these short-term loans offer clear benefits, they're often misunderstood. This guide debunks the most common payday loan myths and gives you clear facts to help you decide if a payday loan is right for you.

Debunking Myths About Payday Loans

Discover the truth about cash advances below.

1. Payday Loans Are Secured Loans

A payday loan is unsecured. That means you don't have to pledge a car, home, or other asset as collateral. You simply repay the loan in a single payment on your next payday, either with the check you provided or through a withdrawal from your bank account. In California, the loan term can be up to 31 days. Learn more about how payday loans work.

2. Payday Lenders Charge Hidden Fees

Are there hidden fees in payday loans? No. The federal Truth in Lending Act requires lenders to disclose the finance charge and annual percentage rate (APR) before you sign. Licensed lenders also post their rates and terms on their websites. Before applying for a short-term loan, review the fees and terms so you know exactly what you'll repay.

3. Payday Loans Are Only Offered in Person

You can get a cash advance online or in person, depending on your preference. Many borrowers now apply online from home in just a few minutes.

4. Payday Loans Charge High Fees to Make More Profit

This is a general misconception about Payday Loans because while the APR’s on these loans are high the fee is actually small ranging from $15 to $45 The fees charged on payday loans help cover the lender's business costs, such as rent, employee payroll, and loans that aren't repaid. Rather than generating outsized profits, these fees allow lenders to keep offering fast, accessible short-term credit.

5. Payday Loans Are Expensive

Payday loans can cost less than bank overdraft fees. In California, the fee on a payday loan is capped at 15% of the check amount, so if you write a check for $100 the fee is $15 and the proceeds are $85 . See how the total repayment amount is calculated. By comparison, a typical overdraft fee can be as much as $35 per transaction.

Banks may charge overdraft fees without notifying you, and those costs can add up quickly, especially if your bank charges a fee for each day your account stays overdrawn. In contrast, payday loan fees are fixed and disclosed upfront.

6. You Need Good Credit to Get a Payday Loan

You don't need good credit to get a payday loan. Payday lenders focus on your ability to repay the loan on your next payday, based on factors like your income and an active checking account, rather than your credit history. If you have a low credit score, you can still explore your options. Review the eligibility requirements for payday loans in California to see what you need.

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Frequently Asked Questions

Are payday loans secured or unsecured?

Payday loans are unsecured, so you don't need to pledge a car, home, or other asset as collateral. You repay the loan with a check or bank withdrawal on your due date.

Are payday loans cheaper than overdraft fees?

They can be. In California, the fee is capped at 15% of the check amount, while a single bank overdraft can cost up to $35 per transaction and fees can add up quickly.

Do I need good credit to get a payday loan?

No. Payday lenders focus on your income and ability to repay on your next payday rather than your credit history. A steady income and an active checking account are typically what matter most.