Payday loans are evil

You've watched the TV commercials, heard the radio announcements and read their flyers. Payday loan agencies are popping up everywhere, and, unfortunately, they're wildly popular. Payday loans, also known as check advance loans, cash advance loans, and deferred deposit loans seem like a quick way out of a cash crunch. They're actually short-term loans with a very high price tag. So why do so many people use payday loans?

Payday loans, despite criticism from many, including the FTC, are attractive to some consumers for a number of reasons. These loans don't require a credit check; credit worthiness is often a problem for those who seek payday loans. It's also a quick way to get money to avoid the embarrassment of asking a friend or family member for the cash.

These loans work when the person borrowing the money writes a personal check to the agency for desired amount of money, plus a fee. Alternately, the borrower may opt to have the money withdrawn from their account electronically on their next payday. The cash advance store gives the borrower the money (except the fee) and holds the check until the next payday. These transactions may also be conducted electronically with electronic deposits and debits. If the borrower is unable to pay the loan in full on that date, another interest charge is implemented for the extension. Continuing this cycle can lead to loans with APRs of more than 300 percent.

There are much better alternatives to getting a payday loan. If your credit is decent and some sort of debt is your only way out, apply for a small loan with your bank or credit union. If you're having trouble making payments, contact your creditors to work out arrangements with them. You may be able to get an extension on your due date.

Even better than those options is preparing for the future by setting a realistic budget and building up an emergency fund. With an emergency fund, you can avoid these types of loans (and their ridiculously high fees) altogether.

Have you ever had to use a payday loan in a pinch? Share your experience in the comments.

Photo courtesy of Jason Comely via Flickr.