Are payday loans really worth it?

While for some people payday loans are the only way they could get quick money due to their financial situation, others think of them as a rip off with too high interest rates. Although you'd probably think that the majority of people using payday loans are from the lower class, the recent surveys show that the most people that frequently use this type of loans are actually from the middle class. For people with a steady job, a little money injection can mean a lot, and having to pay an interest fee isn't all that terrible if you have a monthly income. Still, there are a couple of downsides to the whole payday loan idea.

Of course, no bank would ever issue you a big amount of money without any guarantee you will be able to pay it back, and since the only paperwork required to get a payday loan is the proof that you are employed, they've set up the limit that ranges from $500 to $1000 in most countries. This means that you're pretty much helpless if your needs exceed the limited amount, but still this keeps people from borrowing more than they could pay back. Due to the short time you have to pay the loan back, the question is whether you would be able to pay back an amount of over $1000 anyway. This leads us to the second con of payday loans.

Most payday loans require that you pay them back out of your next paycheck, which usually means around two weeks to get the money. If you take into account that the interest rates are pretty high (around $60 on a $200 loan), you might end up in a worse situation than you were in to begin with. That's why you should think twice about whether you will be able to get the money plus the interest fee in such a short time period.

The price for getting money quickly and without too much additional questions asked lies in the high interest rates. Even though there are several laws that regulate the amount of maximum interest you can pay for a payday loan in order to protect the customers, the fees are still pretty high. If you're borrowing smaller sums of money up to a couple of hundred dollars, the fees are so high it really doesn't pay off to get the loan in the first place.

Most people who are in need of a payday loan are so desperate for quick cash they don't even bother reading the terms and conditions before signing up for a loan. This could mean losing your whole next paycheck just to pay back the money borrowed plus the additional interest fee, so make sure you either consult an expert or understand the terms well before getting a payday loan.