Tempted by a Payday Loan? First, Take a Closer Look

It happens to a lot of people: Your finances are OK-you’re paying all your bills and meeting other obligations-and then something unexpected (and expensive!) happens. You may feel you just need some extra cash until payday, and you might think taking out a payday loan will solve your problems.

How It Works

Payday lenders allow borrowers to take out short-term loans to tide them over until their next paycheck, which is why the loans are no credit check payday loans Loudon TN known as payday loans. If you opt for this type of loan, you’ll probably be asked to write a post-dated check (dated when the loan payment is due) or agree to allow the lender to take the payment directly from your account. Keep in mind, you won’t be making several small payments. You’ll be expected to pay the whole loan, plus the interest/finance charge, all at once.

Before signing on the dotted line-and maybe leaving your finances in worse shape than before-here’s what to know about payday loans.

Costs Can Mount Quickly

Most payday lenders charge a flat fee, but their loans are a lot more expensive than other types. For example, a lender may charge $15 to borrow $100. That doesn’t sound too bad if you pay back the loan on time. But, what if you don’t have the money to pay off the loan when payday rolls around? You may decide to renew the loan. That means you’ll pay another $15 fee. Now you’ve paid $30 to borrow $100, and that’s assuming you pay on time.

Each time you roll over the loan, fees add up and it gets tougher to repay. In fact, according to a recent CNBC report, payday loans could cost you as much as almost 700 percent in interest-way more than you’d pay with other types of loans. (Credit card companies can charge between about 12 and 30 percent.) How does that happen?