Why Payday Loan APRs Are So High
Payday lenders often quote their fees as a flat dollar amount, such as "$15 per $100 borrowed." While this may sound small, when converted into an annual percentage rate (APR), it often exceeds 400%.
The "Debt Trap" Risk
Many borrowers find it difficult to repay the full loan amount plus fees by their next payday. This leads to "rolling over" the loan, where a new fee is charged to extend the term. This cycle can quickly lead to more debt in fees than the original loan amount.
Alternatives to Payday Loans
- Small Personal Loans: Local credit unions often offer low-interest alternative loans.
- Payment Plans: Many utilities and medical providers offer no-interest payment plans.
- Credit Counseling: Non-profit organizations can help you manage your debt and budget.
- Emergency Funds: Building even a small $500 to $1,000 emergency fund can prevent the need for these loans.