Payday loans are a very popular source of finance for many Americans. The need for payday loans arises because of the fact that most of us sometimes need urgent cash which are not available easily through other source of financing. In such situations payday loans comes in handy. These are short term loans which aim at covering the financial needs of the borrowers till the time the borrower receives his next paycheck. The borrowers just sign in a check and deposit it with the creditor for the amount borrowed plus other finance charges and get the money in cash from the borrower. The borrowers can however take back the check and repay back the lender by cash or just pay off the finance charges and delay the payment of the principle amount at a future date.

Payday loans are legalized by state laws in only 37 states and only licensed lenders can operate this business. These loans are much expensive as compared to ordinary loans and it is always better if you pay them back as soon as possible. Payday loans are available from $100 to $1000 and have an average annual interest rate of 450% with additional finance charges which may vary from $15 to $30 for every $100 borrowed. These charges are much higher as compared to cash advance on normal credit cards which charges $13.99 per $300 borrowed and interest rate of approximately 57%.

In order to get a payday loan, all you need to have is a bank account, a fixed income source, and a social security number. These loans are very easy to get because of its high interest rates. Most creditors do not even bother to make a through check on your credit report before they offer you the loan and so you can get such a loan even with a bad credit score.

Because of the fact that payday loans have abnormally high interest rates, it puts the lenders in vicious circle of debts. This happens if somehow the borrower fails to pay back the entire amount within the time specified. The high interest rate will again apply on the principle amount outstanding and escalate your debt amount and this process will continue till you pay back the debt in full. Now if you do not pay for a continuous period of six months, the account will be considered delinquent and the debt will be listed as negative in your credit report which may reduce your credit score. The creditor may even charge off the debt or bring judgment against you and garnish your wages to recover the outstanding debt amount.