The medical bill appears and so do beads of perspiration on your forehead. You are 400 dollars short. You are already overdrawn on your credit card. And it is still time for your next paycheck to arrive. Passing the hat around, to your relations and friends for such a paltry amount, puts your reputation on the line. What to do? Well, the latest option is to go in for payday loans.

What are payday loans?

Simply stated, a payday loan is a cash advance of a few hundred dollars for a very short period. It is designed to help you meet your short-term cash requirements. Typical payday loans are for two weeks or less. And the company extending such a loan just requires a post-dated check for the loan amount, plus a service fee for taking the cash advance. The company offering payday loan deposits this post-dated check on the due date to get back the money. Neat arrangement. This is how payday loans work in theory. But as with all theories, the reality may be quite to the contrary. Read on to know how these payday loans work.

The math of payday loans

Are these payday loans worth it? To answer this question let’s compare these loans with other kinds of loans and cash advances. Typically, the company offering you payday loans, charges 15 to 25 percent as interest or service charge of the loan amount extended to you. This means that if you take a two-week payday loan of 100 dollars, you pay a neat 15 dollars in interest! That is 15 dollars extra of your hard earned money every fortnight. If the pay back of the loan amount is spread over seven fortnights, it will see you poorer by 105 dollars… more than 100 percent of the amount of cash advance! And if, god forbid, your repayment extends over a year, then you would end up paying a whopping 371 dollars in interest alone! And your principal is still pending.

The 1.5 percent monthly charge of the credit card companies on your credit certainly seems music to the ears… easy both on your pocket and your blood pressure!