The average American accrues more than $3,000 per month in expenses. The combination of increased rents, general inflation, and other factors have caused many households to find themselves in need of quick emergency cash.
For many people with bad credit, payday loans are a lifeline, promising quick relief from immediate financial pressures.
However, payday loans tend to have higher-than-average interest rates, which is why you’ll want to carefully explore your options before committing to this type of short-term loan.
In this article, we’ll explore the fundamentals, application process, repayment terms, and potential risks of payday loans. By gaining insights into payday loans, you can make informed decisions about your financial well-being.
What is a payday loan?
According to the Consumer Financial Protection Bureau (CFPB), the general definition of a payday loan is a “short-term, high-cost loan, generally $500 or less, that is typically due on your next payday.”
In other words, these loans are designed to help you quickly address any financial gaps before you receive your next source of income.
While payday loans usually have higher interest rates than other lending alternatives (such as personal loans and credit cards), they are also among the easiest loans to apply for — even if your credit score is less than perfect.
As we will further explain throughout this guide, these loans can be beneficial in certain situations, but they will also carry substantial risks.
Let’s take a closer look at how payday loans actually work.