Responsible Lending

Understanding Short-Term Loans

Short-term loans, including payday loans and cash advances, are designed to help with temporary financial needs. However, they're not right for everyone and can be expensive. Before borrowing, it's important to understand how these loans work and whether they're appropriate for your situation.

Before You Borrow: Questions to Ask Yourself

1. Do I really need this loan? Is this expense truly urgent, or can it wait until your next paycheck?
2. Can I afford to repay it on time? Consider your upcoming expenses and whether you'll have enough to cover the loan payment plus your regular bills.
3. What is the total cost? Look beyond the loan amount—consider all fees and interest you'll pay.
4. Have I explored alternatives? There may be less expensive options available (see below).
5. What happens if I can't repay on time? Understand the consequences, including additional fees and potential impact on your credit.

Understanding the Costs

Short-term loans often have high Annual Percentage Rates (APR). While the dollar amount of fees may seem manageable, the APR can be very high when calculated on an annual basis. For example:

• A $15 fee on a $100 two-week loan equals an APR of approximately 391%
• A $25 fee on a $200 two-week loan equals an APR of approximately 326%

These rates are significantly higher than credit cards or traditional personal loans. Make sure you understand and can afford the total cost before borrowing.

For more details about rates and fees, visit our Rates & Fees page.

Alternatives to Consider

Before taking out a short-term loan, consider these alternatives:

Negotiate with Creditors

If you're borrowing to pay a bill, contact the creditor first. Many companies offer payment plans, extensions, or hardship programs.

Ask Your Employer

Some employers offer salary advances or emergency assistance programs for employees facing financial difficulties.

Credit Unions

Many credit unions offer small personal loans or "payday alternative loans" (PALs) with lower rates and fees than traditional payday loans.

Local Assistance Programs

Nonprofit organizations, community action agencies, and churches sometimes provide emergency assistance for rent, utilities, or other necessities.

Government Programs

Depending on your situation, you may qualify for government assistance programs that can help with food, utilities, healthcare, or housing.

Friends and Family

While it can be uncomfortable to ask, borrowing from friends or family may be an option with more favorable or no interest terms.

Credit Card Cash Advance

While credit card cash advances also have fees and higher interest rates than regular purchases, they may still be less expensive than payday loans in some cases.

Build an Emergency Fund

For the future, even small regular savings can help create a buffer for unexpected expenses, reducing the need for emergency borrowing.

Tips for Responsible Borrowing

If you do decide to take out a short-term loan:

• Borrow only what you need. Don't borrow more than necessary to cover your immediate expense.
• Have a repayment plan. Before you borrow, know exactly how you'll repay the loan on time.
• Read all terms carefully. Understand the APR, all fees, the repayment schedule, and what happens if you can't pay on time.
• Don't roll over or reborrow. Extending a loan or taking out a new loan to pay off an old one can lead to a cycle of debt with mounting fees.
• Prioritize repayment. Make the loan payment a priority to avoid late fees and negative credit impacts.
• Use short-term loans only for short-term needs. These loans are not designed for ongoing expenses or long-term financial problems.

Warning Signs of a Debt Cycle

Be aware of these warning signs that you may be entering a debt cycle:

• Taking out a new loan to pay off an existing loan
• Rolling over or extending loans repeatedly
• Borrowing from multiple lenders at the same time
• Regularly using loans for everyday expenses like groceries or gas
• Loan payments taking up a large portion of your income

If you recognize these signs, consider seeking help from a nonprofit credit counseling agency.

If You're Struggling with Debt

If you're having trouble managing debt, help is available:

• Nonprofit Credit Counseling: Organizations like the National Foundation for Credit Counseling (NFCC) offer free or low-cost credit counseling and debt management assistance.
• State and Local Resources: Many states have consumer protection agencies and resources for people struggling with debt.
• Legal Aid: If you're facing legal issues related to debt, legal aid organizations may be able to help.

Your Rights as a Borrower

As a borrower, you have rights:

• The right to receive clear disclosure of all loan terms, including APR and fees, before accepting a loan
• The right to a copy of your loan agreement
• The right to be treated fairly and without discrimination
• Protections under federal and state consumer protection laws
• The right to file complaints with state regulators if you believe a lender has treated you unfairly