What Are the Risks of Taking a Payday Loan?

When you need money right away, a payday loan may seem like a good option. However, it's important to understand the risks associated with this type of loan before taking it on. Payday loans generally don't involve credit checks and are expected to be repaid in one payment with your next paycheck. But these loans can carry specific risks and are even illegal in some states.

Under your state law, payday loans may be available through payday lenders at physical stores or online. Before taking on the significant financial risks associated with a quick loan, research other alternatives that may be less expensive. Borrowing money from family or friends, opening a home equity loan, or applying for a personal loan are much less risky options. Simple Loan from Bank and Balance Assist from Bank of America provide short-term funding to current customers in good standing.

Online lenders also serve borrowers with bad credit and can finance loans the next business day, but rates may be higher. Like all loans, a quick loan may or may not be right for you, depending on your financial situation and needs. In the process, borrowers pay hundreds of dollars more in fees than was originally announced for the loan. For some, quick loans may be a good option, but it's important to do your research to find the small loan that best and most affordable fits your needs. Payday loans are widely used by people who live in neighborhoods and communities that do not have the services of traditional banks or who do not have a bank account with a major financial institution. Interest rates on personal loans can reach 36%, and that's for borrowers with very low credit scores or limited credit histories.

Traditional personal loans, even small loans, allow you to repay your loan over the course of a few months. If you ever find yourself struggling and need money right away, but you don't qualify for a personal loan, you might consider applying for a quick loan. However, it's important to remember that these types of loans come with significant risks and should only be taken on if absolutely necessary.