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Should I take a payday loan?

Payday loans have gotten a bad rap, but there's a reason they exist. The good news is that recent rules and regulations have cracked down on the amount of interest that these lenders can charge, but the bad news is that they can still quickly get you into a financial hole that could be really hard to get out of.

What is a payday loan?

Do you ever take a look at your bank account and realize that you are critically low and it's still several days until you're paid again? You're not alone – for the many people who live paycheck to paycheck with little or no savings, or for people who find themselves in a time of life when it feels like expenses are just relentlessly piling on, payday loans can help bridge the gap and essentially offer you an advance on your next paycheck.

Ideally, the way it would work would be you get the loan and take care of what you have to take care of, then when you get paid, you pay it off and go along your way. You'll pay for this privilege through fees and interest – the amount will vary depending on how long until your next payday and what provider you're using.

How do they go wrong?

One way that payday loans can send your finances sideways is that the fees and interest alone leave you with way less than you can live on out of your next paycheck, which often leads people to taking another loan and getting into a vicious cycle.

The other way they go wrong is when people extend the loan because they need to spend their entire paycheck, and the fees and interest just keep building up.

Is there ever a time when it would make sense to take one?

One of the benefits of a payday loan is that they are instant and they are cash. In the majority of situations they should be used as an absolute last resort, but if you ever do find yourself having to take one out, make sure you fully understand the terms and have a plan in place to pay it off as soon as possible.