Working in a banking office one of the most common problems I came across was people that have overdrawn their checking accounts. It’s a scary situation when you try to withdraw money you thought you had, but are actually negative in your account. The fees pile on day after day and, unless you’re very vigilant on your account, can end up being thousands of dollars in a manner of weeks. Around 25% of the time what I hear most from people with overdrawn accounts is the post-dated check. What many people don’t realize is that a bank is obligated to pay a check even if the date is marked later. Once you had a check over to any person or industry, the bank is obligated to pay the amount. Consumers often get angry at a bank because a post-dated check has been cashed or deposited without their permission, but the bank is helpless in this situation. By law, they are required to pay the check if the funds are available at the time of deposit. So what does this have to do with payday loans?

Payday loans are emergency loans made to people based on their paycheck stubs. There are numerous places online and locally you can walk into and write a post-dated check for funds now, which are supposed to be paid later. While not all payday loan lenders are unscrupulous enough to cash a check early, there is that risk. What many people don’t understand is the other risks involved. If you miscalculate the amount of your coming check, say you’re ill for some reason, the check gets cashed regardless and your bank account goes into the negative. At this point the check is returned to the depositor and a fee is removed from your account. What happens next is when accounts are lost.

Say you take out a payday loan for $200 based on your weekly (or bi-weekly) paycheck stubs (remember there is a fee for the loan). The total amount of the loan would be around $240. You would write a check, post dated, or give your bank account number with a date of automatic withdrawal for that amount. Now your next paycheck comes and you expect a check for $280. If you make less than $240, or have another payment come through just before the withdrawal from the payday loan company, then you are going to be charged an overdraft fee. Now you have an overdraft fee of $25 along with your $30-$50 fee for the loan and further in debt. You have another week or two until your next paycheck so you’re forced to either ask for money or take out another payday loan. These may seem extreme circumstances, but I saw it quite often while I was working in the banking industry.

It’s never a good idea to get a payday loan. It’s a terrible risk to your financial future. If there is any way to avoid taking out this type of loan, take that way instead.

A payday loan is when a company gives you an advance on your paycheck for a fee. The charges are incredibly high and they often develop into a snowball effect. The snowball effect happens when one payday loan is taken out and then, unable to pay it the following payday the interest accumulates again. Pretty soon the amount owed is more than just one paycheck, it’s two or three. Sometimes these payday loans with bad credit borrowers are very predatory. They prey on the desperation of men and women who are about to lose their house or car.

Taking out a payday loan isn’t at all like a credit card, although some people might try to make the comparison. A credit card has an annual percentage rate. That means the total percentage over a period of 12 months is about 15-25%. By comparison, a payday loan is a straight 15%-30% fee and is calculated at an annual percentage rate of about 400% to 800%. If you can’t imagine getting a credit card at 500% interest rate, it’s time to think about other options. But the interest rate isn’t the only problem with a payday loan.

Payday loans with bad credit aren’t a problem to get because usually no credit check is needed. The insane fees associated with the loan are enough to bankrupt anyone who isn’t able to pay off the loan in the period. These payday loans with bad credit borrowers are most often targeted towards low income people. The people who often don’t have the means to get a regular loan and are so far behind in payments they find it impossible to make ends meet weekly. It may seem like a good idea to take the payday loan at the time the money is needed, because they aren’t offered with much choice.

Many people don’t understand that lower income people don’t have an option with emergency funds. Because they have bad credit, they don’t have the resources to tap during an emergency. They don’t have credit cards, equity loans or even other family members that can help. The lenders prey on these people just for those reasons. They’re easy targets because they can’t afford not to get the payday loan.

What many people don’t understand is there are options. Not all of them are attractive options, but they are options.

• Rebuilding credit doesn’t help in an emergency situation, but it will help at a later date. If you need to take an emergency payday loan, plan on rebuilding your credit as soon as possible. Then you have a credit card in emergencies.
• Pawn brokers are another option of emergency cash. It’s better to lose a TV than a bank account because of the overdraft fees; or the accumulation of hundreds of dollars in fees.
• There are places that pay for day labor. A simple way to make extra money is to work a day shift or a night shift.

Just about any other option is better than getting a loan which charges up to 800% interest. If you find yourself in the situation of needing emergency cash, go for the safer options first.

Payday loans are generally loans taken out in advance of your payday. If you need $300 today and you don’t get paid until next week, you’re a good candidate for one of these loans.

What are they like?

Without question, they are one of the worst kind of loans out there. They have insane fees and ridiculous interest. You wouldn’t want to take out a loan like this unless it was a last resort and you didn’t have any other options.

Who can qualify for these loans?

Almost anyone who is 18+ with a job can qualify, as long as you live in a state where the loans are legal.