Choosing a payday loan can be complicated. In general, The Payday Hound choice is to find the lowest priced, state licensed lender. There are situations where going with a different approach makes sense. For example, there may be a lower priced non-licensed lender or there may be no state-licensed lenders in your state. In general, if you pay your loan on time, most lenders behave appropriately. Although there are recent stories of lenders that ignore requests to payoff your loan on time and automatically renew your loan subjecting you to additional fees but in general most problems come when you are unable to pay. Some lenders may work with you more while others may just continue to draw from your account and pile on fees. It is in this situation when a state-licensed lender is often preferable.
In general, The Payday Hound suggests considering three areas when choosing a payday loan: lender type, pricing, and your state’s payday lending laws.
There are basically four types of lenders online: state-licensed lenders, out-of-state lenders, tribal lenders, and foreign-based lenders. State licensed lenders are licensed by individual states and must comply with individual state laws. The second group is out-of-state lenders. Some out-of-state lenders are licensed in their state and export their laws into your state while other out-of-state lenders are not licensed in any state and thus, only comply with U.S. federal laws. Third group is tribal lenders. These lenders must comply with U.S. federal laws, but do comply with your state’s laws and instead export their tribes’ laws into your state. The final group is foreign-based entities. This group export their country’s laws into your state but basically are unregulated.
Consider both APR and the total cost of the loan when evaluating payday or short-term loans. Payday loans are designed as short-term loans and are expensive compared to credit cards or bank loans but can be cheaper than bank overdraft or late fees. In any event payday loan fees can add up quickly to so make sure you understand the pricing and renewal terms of your loan. If the term of the loan goes beyond one or two pay cycles, the loan’s fees quickly accumulate. Some payday loan companies offer installment loans. These loans are not due in full on your next payday. Instead, payments are extended over a period of time such as eight pay periods. Each payment pays part of your fees and part of your principal until the loan is paid off completely. These term loans have a lower APR and loan payment but increase your total fees. They are a good choice if you need your loan longer than one payday cycle, but more expensive in terms of fees if you only need your loan until the next payday. See Payday Loans versus Installment Loans for more details.
When choosing a payday loan, the state you live in will impact your options. Some states have effectively prohibited all payday lenders from operating while other regulate and license lenders. We prefer state-licensed lenders if they exist in your state, as the state helps to regulate their behavior. In some cases, non-state licensed lenders may have cheaper rates. In this case, you will need to evaluate whether you want to take the risk of going with an unlicensed lender in exchange for lower fees. The additional risks may be that they do not treat you fairly or are unscrupulous in their collection efforts. Other times, they may operate just as fairly as licensed lenders. The Payday Hound tries to weed out unscrupulous lenders using its Sniff Test, so look for OK to GREAT on the Sniff Test.