Have you ever explored payday loans?  Are they a good thing or bad?  Here is my take.  Remember that I’m loan adverse to begin with.  And payday loans are probably the worst loan you could get yourself into.  It’s a vicious cycle.

Let me explain why.  First of all, payday loans generally have the highest fees possible.  Yes, they normally charge fees instead of interest.  The fees can regularly be as high as $15 to $30 for every hundred dollars you borrow.  So, let’s say you borrow $1,000.  The fee could range from $150 to $300.  That translates to 150% – 300%.  That’s a lot higher rate than using your credit card which is usually less than 30%.  And, the loan is normally due on your next paycheck date.  For most people, that’s within 2 weeks.  To pay the loan, you will either write a postdated check or provide the lender with access to your checking account.  NEVER do that!

So, here’s where they get you.  Not only does your paycheck need to cover the $1,000 you initially borrowed, but it also has to cover the $150 to $300 in fees.  That makes your paycheck tighter to cover the rest of your obligations.  And what happens if you can’t pay? 

Then, you have to roll over the loan or renew it and owe another $150 to $300 in fees.  Or, you pay it off and take out another.  Eventually, you’ll owe hundreds in fees without ever paying the original balance.  Can you see what a deep hole you could dig yourself?  Payday loans are absolutely a vicious cycle.

Moral of the story:

Payday loans are one of the worst lending vehicles you can use.  Avoid them at all costs.  Once you start using them, you could spiral into worse debt and get yourself in deeper.  So, what if you need some money quickly and don’t think you have any options?  Look into payment extensions from your lenders.  They may charge a small fee but I guarantee it will be less than a payday loan fee.  As your bank or lender for a personal or credit union loan.  Contact the National Foundation for Credit Counseling (https://www.nfcc.org/) for assistance.  Ask your employer if they could give you part or all of your paycheck early. Ask friends and/or family for help. Even your credit card (UGH) is a better option.