Payday Loans

Payday loans are a very costly way to borrow money. You may have seen these types of loans hiding behind other names, such as cash advances or check loans. These types of loans should be used cautiously and should be paid back quickly to avoid any additional fees.

Payday loans have a flat fee for borrowing the money. For example, if you borrow $200 from a payday lender, you may be required to pay back the $200 in two weeks, plus $40 as a finance fee. You may also be required to write the lender a postdated check for $240 two weeks from the date that you received the $200. If you cannot pay the loan back after the two weeks, additional fees will apply. The example above shows an annual percentage rate (APR) of 521%. Now compare that to your average credit card APR of 18%.

Even though these loans cost so much, they are still being used. Payday loans typically don't require any credit check, but they do usually require that you have steady income and a checking account. People will also often use these types of loans when in a financial bind. Say your car just broke down and you don't have the money to pay for it. You have a job, but it only pays slightly above minimum wage. Unfortunately, you never established any credit, so this scenario will likely lead to you getting a payday loan for the car repair.

The above scenario isn't ideal, but if a person has no other ways to come up with the money he or she needs, a payday loan can be a viable option. It is possible to use payday loans responsibly. If you are able to pay the loan off, plus the fee, and can still afford your other living expenses, you should be financially stable after using a payday loan. However, if you can't pay back the loan plus the fee, then more fees will be applied. Payday loans can be a dangerous trap if you can't afford to pay them back.

Most states have some type of law that regulates the payday lending industry. These laws are called usury laws. Some states will limit the amount that a lender can lend, some will limit fees that are charged, and some states have even banned payday loans entirely, New York being one of them. No matter where you live, if you do decide to get one, it is important to read the fine print on any loan offer.

It is recommended that you exhaust any and all other options before you decide to take out a payday loan. This kind of loan should only be used for emergencies. Here are some alternatives to payday loans.

• Negotiate a repayment plan with your creditor.
• Use a credit card if you have one.
• Take an advance from your employer.
• Use your bank's overdraft protection.
• Borrow from a 401(k) or other savings account.
• Ask family or friends for the money.