Is a Payday Loan a Good Idea?

Payday loans are designed to trap you in a debt cycle. When an emergency happens and you have poor credit and you don't have savings, it may seem like you have no other choice.

Is a Payday Loan a Good Idea?

Payday loans are designed to trap you in a debt cycle. When an emergency happens and you have poor credit and you don't have savings, it may seem like you have no other choice. But choosing a payday loan negatively affects your credit, any savings you might have had, and may even cause you to take you to court. It's important to explore payday loan alternatives if you're short on cash.

Instant payday loans can cost you not only financially but also emotionally. In response, some states have passed laws to prohibit payday loans or place restrictions on loan terms, including limits on fees and loan amounts. Sellers or these quick payday loans (usurers) usually target people who don't have good credit or decent savings. We have loan options available that can help you get the money you need without having to visit a payday lender.

Loan comparison tools like Monevo can help you quickly and easily compare lenders, check rates, and see what loans you can prequalify for. While this type of loan is advertised as a short-term loan, payday loans can create a debt cycle that is difficult to break free from. Even if your credit wasn't good before the payday loan default, a new collection action is almost certain to make it worse. However, if you have an urgent need or need cash quickly and you are absolutely sure that you will be able to repay the loan with your next paycheck, then a payday loan may make sense.

Payday lenders must disclose the financial charge and annual interest rate (APR) in writing before signing the loan. Some desperate borrowers continually apply for payday loans when they can't catch up enough to pay the original balance. The statutes also set the duration of a loan, some as short as 10 days, but other states do not impose restrictions on the length of a loan. Payday lenders are well aware that the likelihood of receiving repayment decreases with the size of the loan.

Because the costs associated with these loans are so high, borrowers often struggle to repay them and get more into debt, so it's a good idea to carefully consider your options before applying for a payday loan. An advance salary loan is a loan made by your employer that allows you to borrow money from your future paycheck. To avoid falling prey to a payday lender, you must set aside money for emergencies and build credit in case you need to apply for a loan. Most payday borrowers work this way, either by paying a commission to renew a loan for two more weeks or by applying for new loans, plunging them into a dangerous cycle of debt.

Many customers who use payday loans are unaware of high interest rates and focus more on so-called commissions.