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When money is tight and a financial emergency leaves you in a bind, it’s tempting to run for the nearest cash advance store to get a payday loan. Payday loans claim to be the fast and convenient way to get cash when you need it most. While these loans may appear to be painless at first glance, they can dig you deeper into debt if you aren’t careful.

Payday loans, also known as cash advance loans, allows you to borrow funds without having to pay them back until a designated date in the near future, typically your next payday. Typically, a borrower will write a check out to the lender, and the lender will hold this check until payday. Lenders usually charge a initial fee for payday loans, so the check would be written out for the amount borrowed plus the amount of the fee. A more modern method for obtaining payday loans simply requires you to fill out an application online using your bank account information. The deposit and withdrawal of funds is completely electronic, though sometimes the lender will require that you fax them a bank statement or pay stub for verification purposes. With most cash advance lenders, a credit check is not required, which is a key advantage for those with bad credit.

Cash advance fees are based on what you borrow and are calculated in one of two different ways. One method charges a percentage of what you borrow, usually between 10-20% of the loan. The second method is similar, but calculates fees per amount, such as $15 per $100 borrowed. These are just the initial fees, which may not seem too severe if you are in serious need of cash. If you don’t pay the loan back right away and ask for an extension, however, these nominal fees can quickly skyrocket. The annual percentage rate, or APR, on payday loans can be astonishingly high, sometimes upwards of 500%. This can suddenly turn your initial $10 fee into $50 or more.

Payday loans can be helpful if you use them wisely. They should be used only if you truly need them, which will usually be an urgent situation when you need cash immediately. At this point, the only other options might be getting an advance on your paycheck from your boss, getting a cash advance on your credit cards, or borrowing from family or friends. Getting an extension on bills that are due might also be a good way of buying yourself a few days. It is important to weigh your options carefully before making a decision.

In any case, you may still decide that a payday loan is right for you, in which case you will want to compare lenders to make sure you are getting the best deal. Compare both initial fees and extension fees, as well as how long you will have to pay the loan back. When you get a payday loan, try to pay it back as soon as possible. If you pay it off early, you may be entitled to refund on a portion of your fee. At the very least, be sure the proper funds are in your bank account so that when the loan amount is withdrawn you don’t have to worry about overdraft fees.

In the future, try to avoid putting yourself in a situation where payday loans are necessary. Budget your money carefully so you can avoid overspending, and allow yourself at least a small amount of savings every paycheck to go towards an emergency fund. Try to be in search on long term solutions that will improve your financial situation in the long run.

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