The appeal of a bad credit pay day loan is threefold:

  • Most anyone with a job can get one, oftentimes without a credit check.
  • You can get the money fast, sometimes even the same day.
  • You don’t have to borrow a large amount, usually as little as $100.

The problem is that payday lenders charge substantial fees on the money you borrow. In most instances, if you borrow $100, you have to repay $125 or more – and you’re expected to repay within two weeks, as soon as you get that next paycheck. If you can’t repay in time, you’re forced to take out an additional loan to pay back the money from the first loan, and that’s how you get stuck in a debt cycle. The Federal Trade Commission Center for Responsible Lending cites that 90 percent of people who use these loans take out five or more of them annually.

What can be even worse than the cycle of debt is the interest rate you paying. A $25 fee on a $100 loan over a two week period equals an Annual Percentage Rate (APR) of over 750 percent.


Ending the Cycle of Bad Credit Pay Day Loans

Payday lenders tend to market their services to people who feel like they have no other options, which is why they target individuals with bad credit. It’s important to know that using a payday lender is not the only way. Never use a payday lender to get money for something that is not a necessity, like a gift for someone or a vacation. You will be better off in the long run just sparing yourself the expense.

If you truly need money ASAP -for example to pay a bill that is about to go to a collections agency- call the creditor and explain your financial trouble. You may be able to work out an extended payment schedule or get your interest rate lowered. Barring that, other options are borrowing from a friend or relative, who is likely to charge no interest or at least less interest, or working with a bank or credit union to get a loan with a better rate or a longer term. Sometimes, credit unions and community banks are more willing to take the risk on someone with bad credit than a large national bank.

It’s important to start building up your credit history so you no longer have to worry about borrowing from payday lenders. The best way to do that is to simply pay your debts on time, even if you can only afford the minimum payment. Once your credit rating starts to improve, you should be able to get credit extended from more financial institutions. What is even better is that as your amount of debt starts to shrink, you will find that you don’t have to look to payday loans for solutions.

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