Those who offer payday loans claim to be offering a beneficial service to those who cannot take out loans from standard banking institutions. However, while this may be one of the only choices for some, these loans pose significant risks. Due to high interest rates and the ease of taking out more money than you can handle, payday loans can significantly hurt an individual or family financially.

It is important to take the interest rates of these kinds of loans into account. Payday loans are known from having significantly higher interest rates than loans from standard banks. The extremely high annual percentage rate can commonly double, or even triple one’s debt in a year, allowing debt to spiral out of control in even a few short days.

This is a significant threat, and is one reason why individuals get trapped paying debt for years.

Because consumers often have trouble paying off these loans, it is common for those who are indebted to payday lending institutions to search for short term solutions. Most institutions that offer payday loans will offer short term solutions that will hurt the borrower in the long term. By offering extensions on due dates and smaller payments per pay period, individuals can prevent themselves from defaulting in the short term; however, due to the high interest rates of these loans, consumers will end up paying significantly more in the long term.

To protect oneself from long term debt, it is important to consider the intricacies of payday loans. Considering interest rates as well as potential cycles of debt will assist one in making financial decisions.