Quick cash: the disadvantages of payday loans

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If you need money to pay your bills, you might think about getting a payday loan. But before you sign on the dotted line, you should know there are serious downsides to payday loans and there are other loan options you should consider.

Payday loans might look like a quick, easy way to get cash when money’s tight. With these types of loans, here’s not a lot of paperwork, no credit check, and you don’t have to give the lending companies something of value, like the title to your car, to qualify. But there are other risks to understand.

How do payday loans work?

A payday loan is a very short-term loan that provides you with a small amount of cash. You can apply in person or online for a payday loan and you write a check or set up an electronic debit from your checking account for the amount you want to borrow plus any fees. The lending company gives you the cash and holds the check or debit until you’re supposed to pay the loan back, usually in a week or two or when you get your next paycheck. At the end of the loan period, the lending companies cashes the check or withdraws the amount from your bank account.

If you can’t pay the loan back, you can roll it over, basically taking out a new loan. When you roll payday loan over, the lending company adds additional fees to the amount you owe, so the amount you need to pay back grows.

What are the downsides of payday loans?

Three alternatives to payday loans.

Before taking out a payday loan, look into these other options:

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