Payday loans are short term loans offered without a credit check. Pretty much anyone with a job and a checking account can obtain a payday loan. In some cases, the job may even be optional.

The procedure is simple. Go to a payday loan store (there are many franchises to choose from), fill out an application and in minutes, you have cash in hand. Then, when you get your paycheck, you come in, pay back your loan, with interest, and are done with it.

The danger of habit

It sounds easy. And in some ways, it is. The problem is, if we’re not very careful, taking out payday loans to cover daily needs can become a chronic habit. The fact that the loans are so easy to take out is, in the long run, a big part of the problem.

When taking out a payday loan, most people catch the fact that the interest rates are high right off the bat. The advertised rates vary from place to place, often based on how much money you borrow, but they average between 10% and 15% in most cases. And unfortunately, the advertised rates are a bit deceiving.

Interest rates are key

When you take out a bank loan, you are given an annual percentage rate for the interest you must pay while repaying the loan. With payday loans, the interest rate is a simple percentage of the amount you are borrowing and paying back two weeks later. A typical payday loan charges somewhere in the neighborhood of 300% annual percentage rate or more.

Get it paid off

Of course, the general idea is that you will pay your loan off on payday, so you will only play the interest rate once. If you can actually do that, a payday loan might not be a bad idea to cover a genuine emergency. If, however, you won’t be able to make it until the next paycheck without taking out another payday loan, you might want to consider either finding the money elsewhere or doing without until payday.

Only you can determine if your need is serious enough to warrant the high interest you will have to pay. Just don’t get caught up, as so many have, in the endless cycle of taking out one payday loan after another.

Photo via Samout3