A payday loan may provide quick money, but its short repayment period and high fees can make a small emergency much more expensive.
A common fee is about $15 for every $100 borrowed. That means a $300 loan could require a payment of $345 within a few weeks. When expressed as an annual percentage rate, the cost can approach 400%.
The biggest danger is a rollover. If you cannot repay the full balance, the lender may allow you to pay another fee and extend the due date. That fee does not reduce the original principal.
For example, paying a $45 rollover charge on a $300 loan means you may still owe the original $300 plus another finance charge. Repeated extensions can create hundreds of dollars in fees without meaningfully lowering the debt.
Before accepting a payday loan, ask a credit union or bank about small-dollar alternatives. You can also request a payment arrangement from the company you owe or contact local assistance organizations.
If you already have a payday loan and cannot repay it, ask whether an extended repayment plan is available. Rules differ by state.
Review any authorization allowing the lender to withdraw money from your bank account. An unsuccessful withdrawal could trigger lender charges and bank overdraft or insufficient-funds fees.
