Payday loans are very simple loans that often do not rely upon credit checks, just a pay-stub, checking account, and telephone number.  These simple loans often have very negative consequences though.  This is a type of predatory lending because of the high interest rates and the targeting of those who are in poor monetary states.   

Payday loans are often set up so any person can apply and obtain a small loan for a small amount of money.  This amount is often the same as one’s normal check size, although some of these loans can be for several thousand dollars.  Because the lending institute makes so much money per loan and understands that these are all high-risk loans, there are often no credit checks.  This lack of credit checks means that everyone gets the same treatment and high interest rates. 

Many of these payday loans have huge interest rates, with 150% per day not being uncommon.  To understand this, one simply needs to look at a $100 loan.  With a 150% per day interest rate, by the second day, one is looking at having to pay back $150.  The third day has the total being $225.00.  This rate continues until the loan is paid back between 7 to 18 days.  Than can mean a lot of money being spent for a small gain of cash.   

Since one is often gaining, more money than he is or she is capable of paying off in a week, one will often fall behind in the payments for the payday loans.  This can create a very vicious circle in which the debtor falls further and further behind on his or her bills.  This can negatively affect one’s credit rating and create difficulties if one wishes to obtain a loan for a large purchase.  This can lead to depression and further debt.  It is generally considered a poor idea to use a payday loan to obtain funds. 

Payday loans are type of predatory lending, not because it mis-leads people into thinking that it is a good loan style, but because of the high interest rate and the targeting of needy people.  Many of the people who use payday loans do not understand the consequences associated with such a high interest rate.  This causes them to take the money with the idea that the amount owed will be the amount borrowed.  This can cause people to take more money than her or she can afford to pay back.  The different payday loan centers know this and yet allow it to happen.  They make money off the interest and off defaulted loans.  

It is generally considered much better to be a week late on bills than to engage in payday loans.  While it is important to put food on the table, the amount of money spent on the loan often makes it difficult to pay for the next week’s food.  A better idea would to seek assistance in the community.  If one feels that he or she is having trouble getting out of the circle of debt, there are many nationally run credit agencies that can assist one in getting out of debt and improving his or her credit rating.