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Payday lenders appear to be everywhere, promising borrowers fast cash for a small fee. As the fees are seemingly small at approximately $10 to $30 for each $100 borrowed, the costs can add up when borrowers rollover loans from one pay day to the next, leading to a highly effective rate of interest of 200%, 300% or more. And unfortunately, four out of five payday borrowers roll over their loans, based on the Consumer Financial Protection Bureau.
Payday lenders?and?car title lenders?often target borrowers with bad or nonexistent credit who have limited borrowing options. However, you will find progressively more choices for borrowers with poor credit.
Alternative lenders
To showcase some options, NerdWallet compared pay day loan rates with?the ones from alternative lenders across the U.S. We looked at $300 loans lasting five months, which simulates the expertise of a typical pay day loan borrower, according to the Pew Charitable Trusts.
The study by Pew found that on average borrowers would pay $459 in fees for any $300 pay day loan held for five months, while?people borrowing from community banks and credit unions typically will pay about $13 in fees for any $300 loan.
The average cost for a $300 five-month loan ranged from $172 in Colorado, where such loans are strictly regulated, to $701 in Texas, where lenders typically charged an annual percentage rate of 454%. Fees for pay day loans vary widely from state to state because of differing regulations. However, a $300 personal bank loan from a small bank or credit union typically costs $446 just one pay day loan.
NerdWallet’s study found that borrowers with poor or no credit rating might get comparable loans for a lot less – even without fees or curiosity about some cases. Unsurprisingly, NerdWallet also found that borrowers with higher credit could borrow more in a cheaper rate than borrowers with poor credit.
Read?this story?for details about avoiding?pay day loans and also to learn about other options for borrowing money.
Key findings
Borrowers pay $446 more for a?payday loan compared to a loan from the?small bank . On average, payday loan borrowers pay $459 in fees for a $300 five-month loan. Many small banks and lending institutions offer smaller or credit-building loans?at much lower rates, normally about 18% APR. For any $300 five-month loan in an 18% APR, a borrower would pay $13.63.
Even the most expensive alternative lender is way less expensive than the normal payday loan. LendUp, a web-based option to payday lenders, offers loans at various rates and targets borrowers with poor or no credit rating. Gold members are able to take a loan in a 145% APR, according to the company’s website. ?Other lenders offer options for those who have poor credit.
Some borrowers with bad or nonexistent credit scores can borrow $300 free of charge. SimpleFi is a credit score-blind organization that helps people tackle their financial problems. The service is offered in certain states to teachers, military personnel, first responders and employees of participating companies. One option is a 0% interest $300 loan that borrowers can repay in semimonthly installments.
The average payday borrower pays four?times more for a $300 loan than a borrower with excellent credit would pay for a $1,000 loan. Lending Club, a web-based peer-to-peer lender, provides a $1,000, three-year loan for $108.29 in interest payments. That compares using the average $459 in fees payday lenders charge for a $300 loan over five months.
Payday loans in contrast to personal loans
| State | Payday loan cost | Average payday loan APR | LendUp cost ($300 loan for five months) | LendUp APR | Credit union or small financial loan cost ($300 loan for five months) | Credit union or small bank loan APR | SimpleFi cost ($300 loan for A few months, with semimonthly payments) | SimpleFi loan APR | Lending Club ($1,000 loan for 3?years) | Lending Club APR |
|---|---|---|---|---|---|---|---|---|---|---|
| Alabama | $525 | 461% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Alaska | $500 | 435% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| California | $450 | 411% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Colorado | $172 | 129% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Delaware | $315 | 517% | Not available | Not available | $13.63 | 18% | Not available | Not available | $108.29 | 6.8% |
| Florida | $345 | 304% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Hawaii | $529 | 461% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Idaho | $668 | 582% | $178.77 | 145% | $13.63 | 18% | Not available | Not available | Not available | Not available |
| Illinois | $465 | 330% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Indiana | $440 | 382% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Iowa | $390 | 339% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Kansas | $450 | 391% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | Not available | Not available |
| Kentucky | $536 | 469% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Louisiana | $467 | 435% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Maine | $250 | 217% | Not available | Not available | $13.63 | 18% | $0 | 0% | Not available | Not available |
| Michigan | $425 | 369% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Minnesota | $288 | 252% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Mississippi | $330 | 287% | Not available | Not available | $13.63 | 18% | Not available | Not available | $108.29 | 6.8% |
| Missouri | $563 | 455% | $178.77 | 145% | $13.63 | 18% | Not available | Not available | $108.29 | 6.8% |
| Nebraska | $530 | 461% | Not available | Not available | $13.63 | 18% | $0 | 0% | Not available | Not available |
| Nevada | $596 | 521% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| New Mexico | $470 | 337% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| North Dakota | $610 | 530% | Not available | Not available | $13.63 | 18% | $0 | 0% | Not available | Not available |
| Ohio | $680 | 591% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Oklahoma | $450 | 391% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Oregon | $177 | 156% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Rhode Island | $300 | 261% | Not available | Not available | $13.63 | 18% | Not available | Not available | $108.29 | 6.8% |
| South Carolina | $450 | 391% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| South Dakota | $660 | 574% | Not available | Not available | $13.63 | 18% | Not available | Not available | $108.29 | 6.8% |
| Tennessee | $490 | 426% | $178.77 | 145% | $13.63 | 18% | Not available | Not available | $108.29 | 6.8% |
| Texas | $701 | 454% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Utah | $627 | 474% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Virginia | $370 | 305% | Not available | Not available | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Washington | $360 | 192% | Not available | Not available | $13.63 | 18% | Not available | Not available | $108.29 | 6.8% |
| Wisconsin | $660 | 574% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
| Wyoming | $300 | 261% | $178.77 | 145% | $13.63 | 18% | $0 | 0% | $108.29 | 6.8% |
Note: Some states aren’t listed because storefront payday loans can be found in 36 states only.
Payday loan alternatives
Payday loan rates and fees.?For average pay day loan rates and fees, we used data in the Pew Charitable Trusts. The study analyzed $300 loans lasting five months for the 36 states where pay day loans are legal.
Lending Club rates and fees.?Lending Club is definitely an online peer-to-peer lender. For the study, we calculated the price of a $1,000 loan for 36 months at a 6.8% APR, the best rate open to Lending Club borrowers.
Credit union and community bank rates and costs.?Many community banks and lending institutions offer pay day loan alternatives for example small-dollar loans or credit-building loans. The particular rate borrowers pay differs from bank to bank, but for our survey, we assumed an 18% interest rate, the most common level inside a small-dollar loans pilot program through the Federal Deposit Insurance Corp.
SimpleFi rates and fees.?SimpleFi is really a credit score-blind organization that helps employees with their personal financial problems. The business offers consumer credit counseling as well as loans. In addition to low-interest “Debt Clearing Loans,” SimpleFi offers interest-free “Quick Assist Loans.” Currently, SimpleFi loans are available in some states and just to teachers, first responders, military personnel and employees of participating companies.
LendUp rates and costs.?LendUp is an online option to payday lenders. Loan rates decrease as borrowers repay their debt. For the study, we based our calculations on the 145% APR, the speed open to LendUp’s gold members, based on the company’s website. We find the gold level because entry-level borrowers are allowed to borrow $250 only. LendUp will come in select states, and also the exact APR and fees may differ from place to place. LendUp doesn’t allow rollovers on loans, so our estimates are based on five successive 30-day loans.
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A new version want to know , was posted at 9:50 a.m. Pacific time on March 17.
Details about SimpleFi were updated March 19.
Image via iStock.
