What Is a Payday Loan?

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A payday loan is a loan that you get from a business that is not a bank, usually a loan store. It is called a payday loan, because you generally borrow just enough to get through to your next payday, upon which the money is due. Payday loans are marketed heavily to people who are the working poor and who have difficulty in making ends meet each month. Once you start taking out payday loans, it is easy to become dependent on them.


How Does a Payday Loan Work? 

Payday loan amounts are usually very small and less than $500.00. Payday loan businesses operate under a wide variety of titles, and may take postdated checks as collateral. Generally they charge a large fee for the loan, which puts the interest rate very high, some rates are as high as four hundred percent. Many states are working on passing regulations to help consumers that rely on these loans.

Payday loans are easy to apply for. The way the business make money is through the fees and the fact that many of the customers come back in again and again The business justifies it as offering a much needed service to people who may need a little help from time to time, but the amount that it makes on each loan is very high. 

What Are the Dangers of a Payday Loan?

Payday loan businesses cause customers to become reliant on them because they charge large fees, and expect quick repayment of the money.

This can make it difficult for a borrower to pay off the loan and still be able to meet monthly expenses. Many borrowers have loans at several different businesses, which worsens the situation. If you rely on the loans, you will have less to spend on what you need each month, and eventually you will be behind almost an entire paycheck.It is difficult since these are such short-term loans and the fix it provides is only a temporary one.


The fix is not a permanent solution. If you find yourself needing a payday loan, you should look at your current financial situation and look at ways to change how you budget and plan your finances a different way. If you are tempted to take out a payday loan for something like covering a vacation or a trip to the amusement park, you should not do it all.

What Are Alternatives to a Payday Loan?

Payday loans should be avoided at all costs. If you need help turn to other sources first. Some credit unions and banks have begun to offer a similar service, but at much lower interest rates. The rates are usually comparable to a credit card around twenty percent. You may want to consider a salary advance loan through a bank or credit union. Even though you should avoid using a credit card in emergencies, it is still better than using a payday loan. A credit card allows you to break the payment up and if you can pay it off in just a few months, you will not get yourself into the same payday loan cycle. 

How Can I Break the Payday Loan Cycle?

If you have been using payday loans, you need to stop immediately. You may need to make partial payments on your loans so you can begin to stop the cycle.

You should make sure that you have food, pay your rent or house payment, and keep your power on. Then everything else should go to breaking the cycle. This means you stop spending on anything else until you have paid off all of your loans and you can make it from paycheck to paycheck without using a payday loan. You may want to see if your lender would let you make the loan payment in two installments instead of one if this will allow you to pay off the debt and break the cycle. 

You may need to make other changes to break the cycle such as taking on an additional job or doing something else to raise money as quickly as possible. You may sell your plasma, or look for temp work for the weekend. Another option is to sell things that you no longer want or need. Since payday loans are relatively small, you may be able to raise the money within a month or two.


What Steps Can I Take to Avoid Needing a Payday Loan? 

This is similar to having constant late payments or overdraft charges from your bank. Careful budgeting, and an emergency fund can prevent this from happening. If you do not make enough to meet your current obligations you need to change your situation as quickly as possible. You may need to get a second job or you may need to sell your car or your house if the payments are too much for you to handle.If you are having issues like this, you may not make enough money. You should look for a long-term solution like finding a better job or going back to school so that you can cover your monthly bills without so much stress. You can also address your spending issues and cut back as much as possible.