What Is a Courtesy Loan?

3 min readJun 8, 2021

Couple sitting on the couch reviewing paperwork for a secured loan

Many of us get into financial jams and need fast access to cash. One option available to borrowers is the courtesy loan, which is a type of short-term loan that includes payday loans and title loans. These loans can be obtained quickly—even by borrowers with no credit or bad credit—but their speed and availability often comes at a high price.

For instance, a typical $300, 14-day payday loan in 2020 carried an annual percentage rate (APR) ranging from 138% in some states to as high as 664% elsewhere, according to the Center for Responsible Lending. By contrast, the Federal Reserve put the typical APR for an interest-charging credit card at 15.91% in February 2021, while the typical APR for a 24-month personal loan was 9.46%.

These sky-high rates and accusations of predatory lending have led somes states to ban payday loans and others to place restrictions on them. Still, they are perfectly legal in many states. Read on to learn more about courtesy loans and the risks associated with them.

Types of Courtesy Loans

The two main types of courtesy loans are:

Payday loans: Payday loans are small-dollar, high-cost loans designed to provide financial support until your next paycheck comes. Payday lenders usually don't run credit checks. Payday loans are commonly borrowed in amounts of a few hundred dollars, but payday loans of $1,000 or more are available in some states. According to the Federal Trade Commission (FTC), payday lenders typically charge $10 to $30 for every $100 borrowed. For a two-week payday loan, a fee of $15 for every $100 works out to an APR of 391%.
Title loans: For a title loan, also known as a car title loan, you use your car, truck, motorcycle or other vehicle as collateral. Many title loan companies don't check your credit. You won't get your vehicle title back until you've paid off the loan, along with any finance charges and fees. The FTC says the average monthly fee for a title loan (25%) is equivalent to an APR of about 300%.

Should I Get a Courtesy Loan?

Before you even think about signing on the dotted line for a courtesy loan, be sure you understand how quickly you'll be expected to repay the loan and how much it'll ultimately cost to borrow the cash. Both payday loans and title loans generally charge much higher APRs than other borrowing methods, such as credit cards and personal loans.

Furthermore, lenders that handle courtesy loans normally don't report your payments to the credit bureaus. This means a positive payment history won't boost your credit score. However, the lender may alert credit bureaus if you've fallen behind on loan payments. Delinquent courtesy loan payments can show up on your credit reports, which will likely bring down your credit scores.

Alternatives When You Need Money Fast

To avoid a payday loan or title loan, you can explore other options if you have bad credit or no credit. Among them are:

Unsecured personal loan: You may be able to obtain a personal loan that doesn't require collateral from a local bank, credit union or from an online lending platform. Be aware that you may need a solid credit history and a high credit score to qualify for the best terms, such as a low APR.

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Find APRs from 6.7% to 35.99% and flexible terms of 24 to 120 months. Loan amounts range from $1,000 up to $250,000, with funding available the same day or up to 7 days.

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What Is a Courtesy Loan?

Types of Courtesy Loans

Should I Get a Courtesy Loan?

Alternatives When You Need Money Fast

Compare personal loan rates

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