Why I don't like Payday Loans

Payday loans have become fairly common over the last few years and a lot of people use them. However that doesn't mean they are a good idea. In fact I really hate payday loans as they are one of the worst things that you can do financially. They should only be used when absolutely necessary.

The most obvious reason that I don't like payday loans is that they are a very expensive way to borrow money. The interest rates that are charged on payday loans are extremely high and in most cases these aren't even the biggest expense. The problem is that most people don't realize just how high the interest rates are because they are borrowing money for such a short time frame. However if you do the math you will find that the interest rates are in the several hundred percent a year range. In addition you will also have fees charged that will drive the cost of borrowing up even higher.

While the high cost is definitely a problem it is not the biggest reason that I hate payday loans. The bigger problem is the repayment terms. When you take out a payday loan you need to pay the whole thing back in its entirety on your next payday. Given that you can borrow up to half of your take home pay plus all of the fees that get added on, after you pay back your loan you likely have very little of your pay check left. This of course leads to your taking out another payday loan and before you know it you are taking payday loans every pay period to get you to your next payday. Over the course of a year this will cost you thousands of dollars.

One of the other problems with payday loans is that since they are so easy to get it encourages people to use their money in an irresponsible way. Certainly there are times when an emergency comes up and you need the payday loan to help you out but most of the time payday loans are used for things that are not absolutely necessary. If you can get to your next payday without absolutely requiring a payday loan you should try to do just that.

If you do find that you need to borrow money you should look at all other possible options before you consider a payday loan. Credit cards, borrowing from family or selling some of your stuff are all preferable. If you do have to take a payday loan get the minimum that you need, just because they approve you for half of your pay doesn't mean that you should borrow that much. The key thing here is to make sure that you don't end up in a situation where you need to keep taking new loans to tide you over.