The Two-Week Trouble of Payday Loans

Payday loans can look like a quick fix when money is tight. A few hundred dollars today may help cover rent, groceries, or a utility bill.

The trouble often arrives two weeks later.

A borrower might take out $400 and agree to repay it on the next payday, plus a fee. That fee may sound small — often $15 to $30 for every $100 borrowed — but as an annual rate, it can equal about 400 percent.

The biggest risk is the rollover. If a person needed $400 this week, they may still be short when payday comes. Extending the loan adds another fee, and the debt can grow quickly.

Lower-cost options may include a Payday Alternative Loan from a federal credit union, earned wage access through an employer, a payment plan with a utility or medical provider, or even a credit card cash advance.

Payday loans may be legal in many places, but they are rarely cheap. For many borrowers, the real cost is not the first two weeks — it is getting stuck in the next two.