Why Payday Loans Can Cost You More Than It's Worth

You might have a decent paying job and are able to make the month’s expenses with a tiny bit left over. Sometimes, you can even afford an inexpensive night out, a new outfit, or if you’re really smart you’ll put that little bit away for a rainy day. Many other families are struggling to keep food on the table and shoes on their children’s feet. Either way, life is unpredictable and an unexpected expenses such as new tires on the car or an illness can throw everything into a complete tailspin.

When the unexpected occurs, more and more people are turning to payday loans or credit cards to help bridge the gap between paychecks. A payday loan is exactly what it sounds like – a loan against your future earnings. Sounds like a life saver, doesn’t it? But is it really?

A typical payday loan is quite simple – you, the consumer, will write a personal check for the amount of, for example, £115 to borrow £100. The lender agrees to hold the check until your next payday. You can then redeem the check in cash or write another check to cover the loan. The problem is, if you do this on a regular basis, the fees for borrowing the money can add up to hundreds of dollars. This is very expensive credit. Additionally, some people opt to cover the payday loan with a credit card, which only adds to their credit card debt.

The good thing about payday loans is you don’t have to undergo a credit check in order to qualify in most places, and the money is available immediately. This is a boon to parent who may have to come up with cash to cover a child’s medical expenses, put food on the table, or cover emergency repairs on their car. The down side is the expense, and the fact once you get into the borrowing rut with a payday lender, it’s difficult to get yourself out.

In these tough economic times, there is no easy answer. Emergencies happen and have to be dealt with. So, rather than splurge on even that inexpensive dinner you were thinking about, or the pair of designer shoes that would make a killer addition to your wardrobe, it might be a better idea to put that money in a savings account where it can earn money rather than depend on a payday lender. Such borrowing tends to make a bad situation worse and can cost you hundreds or even thousands of dollars in the long run.