Every year, over 12 million Americans take out payday loans. Have you ever considered this approach?

Payday loans — sometimes referred to as instant loans — can be a viable option when you’re in a pinch and can’t qualify for other types of loans.

Before you decide to apply for such a loan, though, it’s important to understand exactly what you’re getting yourself into.

Everything you need to know about instant loans is explained below.

What are Instant Loans?

Instant loans, or payday loans, are short-term loans. They are usually for small amounts of money (often $500 or less). The length of the loan is meant to last, in most cases, just until your next payday (2-4 weeks is the typical loan term).

Payday loans have very high interest rates. In fact, the average interest rate is 400 percent APR.

Instant loans are a good option for low-income individuals who have less-than-ideal credit scores. Payday lenders typically do not take your credit score into account when you apply.

Important Things to Know About Instant Loans

There is a lot of misinformation out there about instant loans, so it’s understandable if you’re hesitant to apply for one. Here are some key facts you need to know about these loans:

Payday Loans Require a Postdated Check

In most cases, when you apply for a payday loan, you will need to write a postdated check. The check needs to be made out to the lender for the full amount of the loan, plus any fees attached to it.

You can also allow the lender to access your checking account and withdraw money from it.

If you do not pay your loan back by the due date, the lender will cash the check or withdraw the money from your bank account.

Because of this, it’s important to only take out a payday loan if you know you’ll have the money to pay it off by the due date.

Payday Loans Come with High Fees

In addition to high interest rates, payday loans also tend to come with high fees. Payday lenders may charge anywhere from $10 to $30 for every $100 borrowed.

There are other fees associated with these loans, too, including the following:

• Insufficient funds charges: These will be applied if you don’t have the money to repay the loan by the due date.
• Late fees: These may also pop up if you don’t pay back the loan on time.
• Rollover fees: Some lenders will let you roll the loan over into your next pay period, but you’ll likely have to pay extra fees in order to do this.

Be sure to take these potential fees into account before applying for a payday loan. If you want to avoid them, you’ll need to make sure you can pay back your loan on time.

Payday Loans Will Not Boost Your Credit Score

Some people are under the impression that payday loans will help them raise their credit score.

This isn’t actually true, though. Payday lenders typically do not report payment history to the credit bureaus.

If you’re trying to improve your credit score, you’re better off looking into a different type of loan.

Every State Has Different Laws Regarding Payday Loans

Payday loans are illegal in the following states:

• Arkansas
• Connecticut
• Georgia
• Maryland
• Massachusetts
• New York
• Pennsylvania
• North Carolina
• Arizona
• Vermont
• West Virginia
• New Jersey

Other states have limits at all on payday loan fees or interest rates. These states include:

• Delaware
• South Dakota
• Utah
• Nevada
• Wisconsin
• Idaho

The other states fall somewhere in the middle. Before you decide to take out an instant loan, make sure that they are legal in your state and do some research to see if there are any laws that protect you from predatory practices.

How to Find the Right Payday Lender

Are you interested in taking out a payday loan? If so, be sure to keep these tips in mind. They’ll help you find a credible payday lender:

Make Sure They’re Licensed

One of the first things you need to do when you’re considering a particular payday lender is to make sure they are actually licensed to provide loans in the state in which you live.

You don’t necessarily need to borrow from a brick and mortar lender, but you should still double check that they are licensed, whether you’re working with them online or in-person.

Find Out Where They’re Located

Find out where the lender is located, too.

Even if you’re working with an online lender, they should have contact information (including a physical address) available on their website. This helps you ensure they are acting in accordance with their state’s specific payday lending laws.

Make Sure They’re a True Lender

Some payday lending websites aren’t lenders at all. They’re brokers that pass your information on to payday lenders. Before you put in any personal information, make sure you’re working with a direct lender.

Read the Contract Carefully

Before you sign anything, read through the contract carefully.

Find out exactly what kind of fees the lender charges, what their interest rates are, and when the loan needs to be repaid.

Look through the fine print and don’t be afraid to ask questions if you’re confused about anything.

Learn About the Other Services They Offer

Any lender can offer payday loans online no credit check instant approval. But, not all payday lenders have programs in place to help you take control of your finances.

Some lenders offer resources to help you improve your money management skills and boost your credit score so that you don’t have to rely exclusively on them in the future.

Looking for More Money Management Tips?

Now that you know more about instant loans, do you think they’re a good option for you?

When used properly, instant loans can help you through a tight financial spot and ensure you have enough money to cover your expenses until your next paycheck arrives.

Do you want to learn about other money management strategies? Do you want to learn how to raise your credit score so you qualify for other types of loans?

If so, we’ve got resources for you. Start by checking out this article on increasing your chances of getting your loan application approved.