When you are in need of money and don't have access to emergency funds, taking out a payday loan can be a great option. However, there are some things that you should know about the process before applying as well as how long it takes to get approved for a loan.

What is a payday loan?

A payday loan is a short-term loan, usually for under $1,000, that you can borrow from a lender specializing exclusively in short-term loans. You typically have to pay back the loan within two weeks (i.e., your next paycheck, hence the name), and the interest rate on these loans can be quite high.

Why would I need a payday loan?

There are many reasons why someone might need a payday loan. Maybe you're having some tough financial times and don't have enough money in your savings to cover your monthly bills. Perhaps you lost your job and are struggling to make ends meet. 

The biggest reason most people end up taking a payday loan is for emergency expenses, such as plumbing issues or medical expenses. For those who don't have emergency savings accounts already in place, a payday loan may feel like the only option. 

Why should I be concerned about taking out a payday loan now?

There are a few reasons why taking out a payday loan may not be the best option right now. For one, interest rates on payday loans are high.  On average, payday loans have an annual percentage rate of over 200 percent. That means that for every $1 you borrow, you'll owe $2 in interest. 

Moreover, payday loans can be difficult to pay back. Not only do they have high-interest rates, but many borrowers find that they can't afford to pay back their loans on time, which leads to further debt and financial hardship.

Finally, with inflation on the rise, the amount of money you borrow may not be able to cover the cost of your bills for very long. When you take out a payday loan, you're at risk of becoming increasingly indebted and having to take out additional loans to cover basic living expenses.

What should I do if I need a payday loan?

If you're in need of money quickly and don't have a savings account set up for emergency funds, there are alternative options available. You can try borrowing money from a friend or family member, or even take a cash advance on your credit card. The interest rates on cash advances are typically higher than your standard purchase APR, but they're still much lower than payday loans. 

There's also the option of applying for a hardship loan through your bank or credit union. These loans are available to people who have difficulty meeting their usual financial obligations, and the interest rates tend to be lower than payday loans.

The bottom line

If you need a short-term loan to cover necessary expenses, consider all your options before taking out a payday loan. The cost of borrowing can be very expensive, especially when plenty of other options are available.