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Bankruptcy Law Frequently Asked Questions (FAQs) | Missouri & Illinois Common Bankruptcy Legal Questions

Q: I am currently in a bind for paying bills.  I don’t get paid for two more weeks.  Should I consider taking out a payday loan?

A:

Everyone is in a cash crunch every now and then.  Although it is easy to take out a payday loan, these predatory loans should never be an option if you’re in a bind.

Payday loans are used to borrow against a future paycheck, but it’s deceptively costly. Let’s say you need $500 to fix your car right away.   You’d write a post-dated check to the payday lender, but you have to add on $15 for every $100 you borrow. So, you’re writing a check for about $575. That works out to an annual interest rate, sometimes as high as 300-400%.

Payday lenders prey on people who don’t have bank accounts. For these people, the process becomes a vicious circle as the average person takes out 11 loans a year. At those interest rates, you can see how easy it is to fall behind.

There are better choices. First, get a bank account, manage it well and apply for a line of credit or overdraft protection. Check with a credit union, which typically have great rates. If all else fails, you could check with your employer for an advance.

Bottom line? No matter what, stay away from payday loans.

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