Can You Get a Low-Interest Payday Loan?

No, low-interest payday loans don’t really exist. Payday loans are short-term loans designed to provide quick cash — usually $500 or less — to borrowers who need funds before their next paycheck, but they have very high interest rates. These loans usually only require basic information, like proof of income, a checking account and identification.

While payday loans allow individuals with poor or no credit history to access funds, they often come with high processing fees and repayment terms as short as two weeks. You should therefore consider safer financing alternatives, like a personal loan.

You can quickly end up in a cycle of debt if you aren’t careful with your planning of these types of loans.

Payday loans don’t require credit checks, which makes them accessible to borrowers with poor credit scores or those with little to no credit history. To apply, you generally need to provide proof of income, a valid ID and a checking account.

Once approved, the lender provides the funds, typically via direct deposit or cash. You must repay the loan in full, including fees, by your next payday, usually within two weeks. Most lenders ask for a postdated check or authorization to withdraw the amount directly from your bank account when the loan is due.

If you cannot repay the loan on time, some lenders allow you to “roll over” the loan, which means extending the due date for an additional fee. This means you’ll owe even more on top of the original loan, which isn’t a wise financial decision.

Rolling over a payday loan can trap borrowers in a cycle of debt, as fees continue to accumulate with each extension, making repayment increasingly difficult.

Payday loans are short-term, high-cost loans typically used for small amounts of money, often $500 or less. According to the Consumer Financial Protection Bureau (CFPB), the cost of these loans varies, but many states cap fees at $10 to $30 for every $100 borrowed. This results in extremely high annual percentage rates (APRs) — often close to 400% for a two-week loan with a $15 fee per $100 borrowed.

For example, borrowing $300 for two weeks with a $15 fee per $100 would result in a $345 repayment, translating to a 391% APR. By contrast, personal loan APRs typically range from 6% to 36%, while credit cards usually charge between 12% and 30%. Unless under extreme circumstances, there are better options out there for quick short-term financing.

Payday lending laws vary by state, with significant differences in how payday loans are regulated or restricted. While some states impose caps on loan amounts and fees, others prohibit payday loans entirely due to their high costs and potential to trap borrowers in debt.

Currently, the District of Columbia and these 18 states ban payday loans: Arizona, Arkansas, Connecticut, Georgia, Illinois, Maryland, Massachusetts, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, South Dakota, Vermont and West Virginia. According to the Pew Charitable Trusts, these states have opted for more stringent consumer protections to prevent predatory lending practices.

Below is a table summarizing payday lending regulations for a few larger states:

Source: National Conference of State Legislatures

When facing a financial emergency, payday loans might seem like a quick solution, but they often come with more risks than benefits. Before turning to a payday loan, consider exploring safer and more affordable alternatives.

MoneyGeek addressed some frequently asked questions about payday loans to provide valuable insight and help you make informed decisions.