1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.

What Is a Payday Loan?

By

Definition:

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 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.

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 payday loan businesses, which worsens the situation.

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.

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 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.

 

©2014 About.com. All rights reserved.