The CFA and FTC have both expressed serious concerns about "predatory lenders" and "legal loan sharking". Both agencies have called payday loans too expensive, too easy to attain, and questioned whether these loans can contribute to debt among poor Americans. Many Americans find themselves unable to repay their payday loans, thus accumulating even more debt as the fees pile up.

Payday loans are very expensive, and many borrowers may not realize how very expensive they are in relation to other types of loans, including credit card cash advances. While lenders should offer not only the lending fee information, but also a calculation of the annual percentage rate or APR as required by the Truth in Lending Act, many do not. If you do not have a good understanding of loan terms, you may believe that a $20 per $100 loan fee is equal to a 20% APR; however, this is not true. A credit card may charge a 20% APR, or $20 per year on $100 borrowed on the credit card. The $20 per $100 borrowed fee at a payday lender is charged every two weeks, making the annual percentage rate 26 times that of the credit card. Payday loans typically have an APR ranging from 250% to 650%, thus making debt particularly hard to overcome. Needless to say, that $100 loan can quickly become very expensive, particularly if you cannot pay it off when due in two weeks.

Why, when faced with these negatives, would people choose payday loans? Most people opt for a payday loan in a time of financial crisis. A bill is due, the car needs repaired, or perhaps there has been a medical emergency. Payday loans are easy to get, can allow you to have the funds immediately, and if you have bad credit, may be your only option in an emergency.

Payday loans are not intended as a long term financial solution. Most lenders limit the total amount loaned to between $1,500 and $2,500 and the average loan is between $200 and $500. Smaller loans are, not surprisingly, easier to manage for consumers. If a consumer avoids taking out loans that they cannot afford to repay, and repays all payday loans when they are due, they can typically avoid incurring substantial debt.

Consumers with bad credit may have no other alternatives when they need some additional cash. Payday loans can be a good option for these Americans, and can provide them with needed funds. If your choices are taking out a payday loan or bouncing checks, the payday loan, if paid back promptly, will be far less expensive. Bounced check fees can accumulate quickly, and bounced checks will damage your credit.

Payday loans come with many drawbacks, and should be used only if critically needed. These loans are expensive, and borrowers should be aware of all their options, and consider whether they have a credit card cash advance available, can borrow from family, or can make do without the funds. Choose a reputable payday lender who offers not only their lending fees, but also information about the annual percentage rate for the payday loan. Be certain that you have a plan in place to repay your payday loan in a timely fashion.

The average borrowers who receive their funds from payday lenders are typically either young persons who do not understand finances to any great depth, people who are struggling with debt, persons who are having a hard time with their everyday financial obligations or people who have previously used high-risk lenders. These groups of people can actually have their financial situation worsened by introducing payday loans into the financial decisions. Unfortunately, millions of U.S. citizens who are chronically short of money and for many of these people, a payday loan can be tempting.

One of the problems that can happen is if the term of the loan is too long, the high payday loan fees keep being added for the length of the loan and the finances of the person can be so stretched that the borrower begins to get repeated loans. This situation stresses out a situation where a cash shortage is already a problem. Payday loan fees have an APR that typically ranges from 250 - 650%, which is a high rate compared to the APR of other types of loans.

A borrower should repay their payday loans back as soon as possible to avoid the heavy lender fees. For instance, many payday lenders renew your loan at the end of two weeks. The fee is deducted and the borrower must pay a new fee when this period ends so if the borrower does not repay the loan in eight weeks, the amount of fees will have grown to $100 and the original $100 that was borrowed still is not paid. If the lender kept renewing the loan for a year, the borrower would then fees of $650 and the original $100 would not be paid yet.