How do payday loans work, and why should you avoid them like the plague?

payday loans

There’s nothing scarier than having no money. Whether you need to pay your heating bill on or buy groceries, you can’t do so when you don’t have money in the bank. Sure, you can put everything on a credit card, but when you’re without funds, how do you expect to pay that card off?

That’s where payday loans come in. Like credit cards, payday loans and lenders give you the option to obtain money before you’re actually given money by your job or any other source of income. Also like credit cards, payday loans also have steep penalties and fees associated with them if you’re late in repaying them.

While most payday lenders are notoriously predatory and could end up putting you further in the red than before, they might actually have some benefits. As author Lisa Servon recently explained to Business Insider, payday loans are far from ideal. They could, however, help you if you use them correctly.

You should only use payday loans if you can absolutely pay them back in the required time frame. If you don’t pay these loans back, you’ll end up having to borrow more money to cover the original loans, and so on. This will create a never-ending cycle of debt that can quickly pile up and stay with you for years on end. If you’re broke but have some money coming to you soon(ish) consider other methods of saving money before you resort to this extreme method of borrowing money.