Payday Loans

Fast Money & Big Headaches

The payday loan is classed as a short-term debt instrument, usually requiring payback within fourteen days or less. Makes sense, right? You get a loan until next payday, then it’s due. Although the quick cash infusion might help you this week, ruinous interest rates can leave you grasping for funds as the next pay period winds to a close.

In states where usury or predatory lending laws are limited, the payday loan has blossomed into a major business. With the advent of web-based financial products and services, the payday loan business is flourishing even in those states which have enacted predatory lending laws. Spam, banner advertisements and thousands of similar concepts have been used to push the loans and individuals with poor credit histories or high existing debt payments and limited income are especially vulnerable to this industry.

Although the temptation to get enough money to make the current crop of bill payments and still be able to buy food may be overwhelming, it behooves even the most cash-strapped borrower to review the nature of the loans. Most interest rates on payday loans start around 640% annualized, if you consider that the $25 interest charge on every $100 borrowed is standard. However, it must be noted that the $25 per $100 is a fixed level. Even if the loan is only for one day, the charge is the same, leading to an equivalent annualized interest rate that can exceed 2000%.