Payday loans are one of the few kinds of financing that bad credit does not exclude you from. The money come with very few strings attached and is usually given out in a matter of hours, not days or months as traditional loans are. However, these loans come with a huge amount of downsides and should only be used in specific circumstances if you’re sure you can pay them back. Otherwise you may end up spending a lot more money on interest than you planned.

A payday loan is given to applicants regardless of their credit history. There are no credit checks so anyone can apply. No distinctions are made between people with good credit and bad credit and both are given the same treatment.  This makes them an attainable loan for people with bad credit.

To get approved for a payday loan you need to be over 18 years of age, have a steady job, and a checking account. The loans can be approved in less than one hour and all the application process involves in basic personal information such as you name, address, employment, and banking information. There are no restrictions on how you can spend the money and the money is usually in yor account the same day. In return, you agree to pay back the money with interest when your next paycheck comes in, usually at most two weeks.

What a Payday Loan is For

Payday loans are a type of high risk unsecured loan that should be used to fulfill short-term funding needs. They are approved for amounts ranging from $100 to $1000 depending on how much you make and how much you want to borrow. They should be used for temporary or emergency situations that you can’t wait to get money for and then paid back on the next payday. Using them for this situation and this situation only is fine, however, you should not make a habit out of using them.

The Dangers of Payday Loans

You should absolutely, positively not use payday loans as a regular funding source. Repay the amount you owe on your next paycheck if possible. If you can’t pay it back by your next payday, pay it back as soon as you possibly can. If you continue to roll over your loan to the next paycheck or use payday loans constantly, you will end up paying huge, huge interest rate fees.

The reason for this is because payday loans are unsecured credit usually offered to people with bad credit. The fact that you can get money quick with no credit checks comes with a price in large fees. Usually payday loans require you to pay $10 to $20 or more in fees for every hundred dollars you borrow. This doesn’t seem like too much initially. But, let’s assume you borrow $200 and pay $20 in fees every two weeks. If you carry this loan through the whole year, which most companies will be happy to let you do, you’ll pay $520 in interest! This works out to an APR of 260%, compare that to credit cards which usually carry APRs in the mid-20 percents. You can see, these are prohibitively expensive and should be used with care only if the need arises.

The most important thing to do when thinking about taking out a payday loan is to do your research. Make sure that you are aware of all the terms and conditions that apply, read any fine print that comes with the loan. Compare the different companies you can get the loan from as well, even the difference of a few dollars in fees means a lot of money in the long run. But the best solution, instead of relying on payday loans is to find the source of your financial problems and try to save money each paycheck so you’re not stuck in situations where you’re forced into taking a payday loan.