ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

The Ins and Outs of Payday Loans

Updated on August 29, 2010

Payday lending has become an extremely popular business throughout America. It might seem odd, but payday lending brings in a lot of money for these companies. Payday loans offer short term money to borrowers - basically an advance on their paycheck. This sounds fine right? There are certainly pros and cons to payday lending and many people completely disagree with the concept of these loans. In fact a city in Ohio recently made payday lending illegal even. Yes, many people are very against these loans. Before you decide one way or another, let's take a look at how they work.

Taking out a payday loan takes time. Some places allow you to do it online, but most require you to go to a branch in person. You need to take several forms with you. The company needs to verify that you will be able to pay back the loan. A payday lending place in Ohio requires two forms of identification, latest bank statement, pay stub, and a postdated check with the payback amount written out. They also need to verify your social security number. That is a lot of information to give out.

Payday loans are very short term arrangements and when your paycheck arrives you are expected to pay back the loan in full. As I mentioned above they expect you to write out a post dated check when you borrow the money - for the full amount borrowed AND the fee. The payday lending company will then cash that check on the day the loan is due. If you are taking out a payday loan you had better be very sure that they money will be in your checking account on the day the loan is due AND that you will be able to live on what is left until the next paycheck.

Believe it or not, not everyone has a credit card. I think we can all agree that sometimes stuff happens and you run short on cash. Not everyone or everything can wait until payday. It might be a week away and they have no food. They might need to make a car payment or have their car repossessed. Maybe their child gets sick and they have a hundred dollar co-pay to see the doctor. Life happens whether we have money in the bank or not. This is where payday loans can help a person out.

The problem with payday loans though, are the astronomical interest rates to borrow a little bit of money for less than two weeks. A site I looked at today showed the interest rate on a $1000 loan to be 26.1% or $261 on top of the thousand originally borrowed. This is equal to an annual percentage rate (APR) of 683%. Wow. Think about it - if you are living so close to the financial edge that you can't make it from one payday to the next is it really going to end well to borrow money with such a high fee attached?

What usually happens when people take out payday loans is that they can't pay the loan back completely and still have money to live on until the next payday. So they keep taking out payday loans. They keep paying high fees to borrow money and they can never get caught up - much less ahead. Payday loans are risky and I believe they are a sign that you are in financial trouble. If you need a payday loan to live between paychecks then it is time for something drastic to change. At some point the cycle has to end. It could end well with you getting back on firm financial ground because you turned things around the lived within your means. Or it could end badly with sinking in debt and possibly filing bankruptcy.

I can see where there is a time and place for payday loans, but they are extremely risky and the costs are very high. I cannot recommend them - in fact I recommend a person do everything they possibly can to avoid these types of loans - if only to avoid paying such high fees. Now that you know how they really work, make a good decision and avoid them.


    0 of 8192 characters used
    Post Comment

    • bayoulady profile image


      8 years ago from Northern Louisiana,USA

      I'm so glad you wrote this, and I hope rradersd follow your advice. I would be stinking terrified to take out a loan!Rate up!

    • SteveoMc profile image


      8 years ago from Pacific NorthWest

      I have never used a payday loan, but I know they are not a good idea. As you pointed out though, sometimes are desparate times. I hope I never have to use one. Thanks for the information.

    • Hello, hello, profile image

      Hello, hello, 

      8 years ago from London, UK

      Vicious cycle and lucky for those who don't have to be in it.

    • cluense profile image

      Katie Luense 

      8 years ago from Buffalo, NY

      Awesome Hub! I rated it up a notch! Keep on writing!


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)