By Evan Vitale

You’ve probably seen them all over town and advertised in local newspapers; radio and televisions stations, but how do payday loan services work and are they an option for you when you need a short-term loan to help get through a bump in the road?

Payday loan services are exactly what their name implies: they offer a short-term loan until your next pay day. These services charge a very high fee or interest rate (based on state laws) for the loan. For example, some may charge only $1 for a $100 loan, but others have been known to charge as much as $20 for a $100 loan. Wow!

Applying for a payday loan is very simple and most services have only a few requirements in order to qualify for a payday loan:

– Borrowers typically need to be age 21 or over.

– Must be submit proof of income (usually a few payroll stubs to prove employment history).

– A valid checking account.

When you get the loan (usually in cash), you will write the payday loan service a check for the loan amount plus the fee. The check is post-dated to your next paid date so the payday loan service won’t deposit the check until the date on the check.

Unfortunately, some individuals get into trouble with payday loans:

– The borrower fails to deposit their paycheck to their bank account in time or doesn’t have sufficient funds in the account in order to cover the post-dated check. Now, the borrow faces additional “bad check” fees and possible criminal charges.

– Some payday loan places offer an extension on the post-dated check. Instead of cashing the check, they will allow the borrower to get an additional loan on the written check. So, now you’re getting a loan on top of the loan making your original $100 loan into a $140 payback.

Payday loans should be treated like any other loan and requires the borrowers’ to maintain financial responsibility to avoid penalties and additional charges. They can be helpful in case of a short-term emergency, but they shouldn’t be relied upon for long-term financial help.