At some point, you may find yourself in need a little financial pick-me-up between paychecks. Emergency expenses can crop up at any time and when you are in need of quick cash, a payday loan can be a tempting offer. The true costs of a payday loan, however, are absolutely astounding and are usually swept under the rug by greedy lenders.  Needless to say,  a payday loan should be an absolute last resort.

Paydays loans are titled as such because one borrows cash with the promise to pay back the full amount plus interest on the next payday. There is an upside to payday loans, such as the ability to get a quick approval, access fast cash, and essentially all you really to initiate the process is a job and a bank account. Overall the process is relatively simple, which is likely one of the main reasons people fall into a cycle of payday loans and debt.

What’s The Bad News?

Payday loans may be convenient and in some cases even necessary for extreme emergencies but there are drawbacks to taking out a payday loan. For many people, the bad often outweighs the good with this type of loan.

Here is a brief summary of the downside to payday loans:

Very Expensive

You may not realize how much it actually costs to obtain a payday loan at first glance and therein lies the problem for many. The law requires that you are informed of the interest rate but those in desperate times may not truly understand the consequences financially. The interest rates on payday loans can be upwards of 700%. What you take out certainly is not what you are going to be paying back. Without some serious planning, one loan can result in the loss of your entire paycheck before you even realize.

Vicious Cycle

Once you allocate your paycheck to pay back the loan and interest fees, you may again find yourself in need of financial assistance. This can leave you in the position of having to take out another loan. A vicious cycle can start and debt will likely soon follow. Payday loans should never be used as a means of income.

Not-So-Reputable Lenders

While there are some payday lenders that are legitimate, there are many that are unscrupulous and illegal. Since you will need to supply the lender with your personal financial information, it is highly recommended that you check out the company you plan to do business with before signing any contracts. Check with the Better Business Bureau or ask people you trust for a referral before you select a payday lender.

While desperate times do call for desperate measures, you don’t have to get taken by payday lenders. Keep in mind that you may have other options for borrowing money for emergency purposes before resorting to a payday loan (such as taking a hardship withdrawal from your 401k). If you do need fast cash and a payday loan is what is available to you, be sure to read everything in the agreement and the fine print before signing any documentation.

Or, you know, you could always move to Thailand!

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