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Moneytree Payday Loans: Steer Clear!

Oct. 2, 2013
Managing Money
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If you’re thinking about taking out an unsecured payday loan from Moneytree, be careful: You’re going to get hit with some pretty steep fees, and there are much better options out there. We’ll break down exactly why Moneytree payday loans are a bad idea, and give you some alternatives.

Explore payday loan alternatives

What does a Moneytree loan cost?

The cost of a Moneytree loan varies from state to state. Here’s a breakdown of the APRs that Moneytree charges on a loan. We assume that the term is 14 days, which is the standard, except for Colorado, where you’re required to pay it off over six months:

State Fees Charged Fees Paid on $200 Loan APR
California $17.50 per $100 $35.30 460.16%
Idaho With checking account $16.50 per $100 $33.00 430.18%
Without checking account $22 per $100 $44.00 573.57%
Colorado *See below $143.77 216.91%**
Nevada With checking account $16.50 per $100 $33.00 430.18%
Without checking account $22 per $100 $44.00 573.57%
Washington $15 per $100 $30 391.07%

*Colorado charges:

  • 45% annual interest
  • Origination fee of 20% of financed amount up to $500 and 7.5% thereafter
  • Monthly maintenance fee of 7.5% of the loan amount up to $30, waived the first month

**Even though the fees on Colorado’s loan seem high, the APR is low because you’re repaying over six months, not two weeks.

400% is a ridiculously high APR – no matter how bad your credit is, you should be able to do better than that. Plus, if you set up automatic payments from your checking account, you expose yourself to bounced check fees of $15-$25 in addition to whatever your bank charges. And for most people, the cost of the loan continues to mount. According to a Pew research study:

  • 65% of people who take out a payday loan end up overdrafting on their checking account
  • More than one in four borrowers say a withdrawal from a payday lender caused the overdraft
  • Over three quarters of payday loans are renewals – meaning the borrower didn’t have enough money to pay off the first loan in time, so he had to take out another to make the payment.

So as high as these APRs might seem, you’re probably going to be paying a lot more if you take out a payday loan with Moneytree.

The other problem with payday loans

The high fees and short-term nature of fast cash get you stuck in one vicious cycle: you need to borrow more to pay off your loan. But there’s another trap with payday loans. You take out an emergency loan because you need money quickly, and don’t have good credit. But the problem is, even though payday loans are, well, a loan, they almost never help build your credit score. Moneytree doesn’t report to credit bureaus, so you can’t build up the credit history you need to get an affordable loan. In order to move past payday lending, you need to build up your credit.

Alternatives to Moneytree

There are cheaper ways to get emergency cash, even if you have bad credit – and the financing options we talk about here will actually build your credit, helping you get to a time when high-interest loans are unnecessary.

Credit union small-dollar loans. Many credit unions make loans of $200-$1,000 with an APR of 28% or less and an application fee of $0-$20 – that’s quite a bit better than Moneytree. The loan term is 1-6 months, so you don’t find yourself  in a vicious cycle of having to borrow to repay your original loan. Plus, the credit unions report your payments to credit bureaus, so you’re building up your FICO score.

Cash advances on a credit card. While cash advances can be quite expensive – you start accruing interest on the day you take out the advance, and you’ll probably be charged a 3-5% cash advance fee – this option can give you quick cash at a lower rate than a payday loan. You can also look for a card with a low cash advance APR or no cash advance fee just in case you need another infusion later on. Here are a couple options:

  • The Spectrum Federal Visa Platinum has no cash advance fee and its cash advance APR is 9.99%-17.99%. Anyone can join Spectrum Federal with a $5 donation to the Financial Fitness Association.
  • The Northwest Federal FirstCard Visa Platinum is meant for those who need to build up their credit history, and has a cash advance APR of 9.99% and no cash advance fee. You are required to take a 10-question online financial education course, however. Anyone can join with a $10 donation to the Financial Awareness Network.

Get your finances in shape! 

This is the time to ask yourself hard questions. Why do you need an emergency loan in the first place? Do you need it for everyday expenses? Most people do – and the difficulty here is that the payday loan isn’t a one-time event. You end up continually borrowing and continually racking up interest. It’s important that you take a long look at your budget and see what you can do to avoid going back to a payday lender two weeks from now. A financial counselor can help you do this.

  • The National Foundation for Credit Counseling lists agencies that provide free and low-cost financial help.
  • On NerdWallet’s Ask an Advisor site, you can get advice from certified financial advisors who’ll answer your questions for free.
  • You can contact a local financial empowerment agency for counseling in your area.
  • If you or a family member is in the military (active duty, Guard or Reserve), you can get up to 12 free financial counseling sessions per issue per year with Military OneSource.

No matter how much you need the money or how low your credit score is, you can definitely do better than 400% APR.