Why Are Payday Loans Bad For You?

Payday loans are a debt trap that leads to high fees and expensive interest rates. They’re particularly harmful to people who have low incomes and higher poverty rates.

They’re tempting because they don’t require credit checks or a history of paying bills on time. They also can help borrowers who are struggling to make ends meet get quick cash.


A payday loan is a short-term cash advance that’s often used to cover a temporary gap in income between paychecks. The loans are typically repaid in one lump sum when the borrower receives their next payday.

The costs of payday loans can be staggering. They average more than 400% annual interest (APR), according to a recent study by the Pew Charitable Trusts.

People use payday loans to cover recurring expenses, such as student loans and everyday transportation costs. Moreover, borrowers can roll over multiple loans, which can increase the cost of their borrowing over time.

Defaulting on a payday loan can damage your credit rating and lead to harassment from debt collection agencies. You may also be charged nonsufficient funds fees at your bank, which can rack up quickly if you’re not able to keep up with payments.

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Payday loans are a convenient way to get quick cash when you need it most. However, they also come with very high interest rates that can trap you in a cycle of debt.

One of the best ways to avoid payday loans is to build up emergency savings so you don’t have to rely on them in an emergency. Even if you do need to borrow money, be sure to shop around to find the best rates for your situation.

In 2017, the Consumer Financial Protection Bureau (CFPB) finalized a rule that was designed to protect consumers from some of the most dangerous payday lending practices. Unfortunately, the Trump administration is trying to gut this rule by rewriting it to remove a key ability-to-repay safeguard.


The high fees associated with payday loans create a debt trap for many people. The Consumer Financial Protection Bureau (CFPB) estimates that payday loan borrowers pay $520 for every $375 they borrow.

In addition to a high annual percentage rate, these loans can have hidden fees and costs.

For example, some payday lenders may charge a finance fee that is based on the amount of money you borrow, rather than an interest rate. This fee can be much higher than the amount you actually borrow, and can equate to an annual percentage rate of almost 400% for two-week loans, according to The Pew Charitable Trusts.

Often, payday lenders don’t check credit history, and they offer cash-advance, post-dated check or deferred deposit loans that are repaid before a borrower’s next paycheck. This makes them attractive to people with poor credit or no savings.

Time to pay

Depending on how much you want to borrow, the time it takes to pay off a payday loan can vary. If you have a specific timeline in mind, there are several online tools that can help you figure out how long it will take to pay off the loan.

For example, one website provides a loan repayment calculator that lets you calculate the number of months it will take to repay a payday loan in a variety of scenarios.

The calculator will let you compare a payday loan with another option that offers more affordable repayment terms and interest rates. Then, you can decide which one will work best for your situation. Alternatively, you can call your local bank or credit union to discuss alternatives.

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Many people, especially those with poor credit, are tempted to turn to payday loans when they find themselves in need of cash. However, they’re often bad for borrowers and trap them in a cycle of debt.

Instead, try to avoid a payday loan altogether and seek other ways to get the money you need. Payday alternatives can include emergency savings, cash advances from credit cards, and even friend or family funding.

Another option is to negotiate with your creditors or loan servicers to work out a payment plan that helps you stay on track with your debt obligations. In addition, you may want to seek debt counseling from non-profit organizations to learn how to manage your finances better.