Why avoid payday loans

So you’re strapped for cash and you just need enough to tide you over until the next payday. Some financial institutions, cooperatives and credit unions offer short-term loans like payday loans or cash advances. So will you avail of these?

They’re really convenient since they give you cash up front without any checks on your credit score and the amount’s usually more than enough until your next payday. But are there any caveats?

The interest’s always a killer. Cash advances usually carry an awfully high interest rate if annualized primarily because they’re only offered for the short term. If you’re careless not to pay up as soon as you get the funds the next payday, you might be in for a 400% to 5,000% annualized interest.

Some credit unions offer craftily-named “Payday Loan Alternatives” but check the conditions and they’re basically the same as with regular payday loans. While the law on credit unions states that the max interest rate is 18%, there are fees (like application and participation fees) that can drive the costs up.