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Steer Clear of Payday Loans

A payday loan is a short-term loan that is due to be paid back by the borrower's next payday, generally two weeks. The interest rates (or fees) or payday loans can reach staggering levels - 400 percent or higher. Typically, a person will wind up paying $10 for every $100 borrowed.

Payday loans are made by some banks, loan stores, check cashers, and pawn shops. Payday-loan arrangements can also be made through various toll-free number and internet sites. The business through which a loan is arranged often requires your savings and checking account information, and that transactions be made by direct deposit- the money you lend and the money you automatically pay. Others accept postdated checks; if the check bounces, your fees continue to pile up.

The lure of a payday loan is that no questions are asked and no credit checks are required. When a personal loan at a bank is difficult to qualify for, a payday loan seems like a harmless option- until the borrower falls behind on payments, has nothing left for basic amenities after money is siphoned from their account, and is stuck with exorbitant interest charges. Payday loans are economic quicksand. Cutting back on the family budget or filing for bankruptcy would be of much greater benefit.

Payday loans are legal, although some states are capping their interest rates. Many of the big banks are abandoning payday-like loans due to new and tougher regulations.

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