Payday loans are meant to cover short-term financial emergencies. However, many payday borrowers end up re-borrowing, paying fees and increasing their credit debt. These loans can also hurt your credit score.

Fortunately, there are a few ways to avoid getting into this trap. First, know your rights. Each state has its own rules and regulations that govern payday lenders.

Fees

A quick search online reveals that payday lenders are notorious for charging triple-digit interest rates. This can quickly add up to a huge debt that’s difficult to repay. It can also damage your credit score, preventing you from borrowing in the future. Fortunately, there are alternatives. Many community banks and credit unions offer small loans with competitive rates. They may also have lenient loan qualification standards than large national banks. Alternatively, you can try online peer-to-peer lending to get a short-term loan with much lower interest rates.

A payday loan is a short-term loan that’s usually due on the borrower’s next paycheck. Borrowers typically visit a payday lending store to secure the loan by writing a postdated check for the amount of the loan plus fees. Depending on state law, these fees can range from $10 to $30 per $100 borrowed. Some states have caps on these fees, but most don’t. They also don’t require a credit check and don’t appear on your credit report, making them accessible to people with bad credit.

Interest

The cost of payday loans can be high, especially for borrowers who are unable to repay the loan on time. The interest rate on these loans can be as high as 391%, which is more than triple the average credit card interest rate. This makes payday loans a form of predatory lending and a financial quicksand.

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