Laws have been created to protect people against the practices of “loan sharks” in which short-term loans are made at excessive interest rates. There is an industry that has come of age in recent years that has circumvented these laws. Enter the payday loan industry.

Payday loans are a new multi-billion dollar industry where people borrow money to hold onto their next payday. These loans are also called cash advance loans and paycheck loans. They prey on the lower class who find themselves out of money before a payday.

The only thing you need to consider when looking for a payday loan is the APR or Annual Percentage Rate that these loans have. At first glance, you may think that paying $240.00 for a loan of $200.00 for two weeks is fine. The APR of this loan comes to a whopping 520%. That is the amount this loan would cost if played for one year. Compare this to a 29% high interest credit card. When you look at it in comparison to these numbers, you can see that they are not quite the bargain you first thought.

A representative of a payday loan company agreed to be interviewed for this article on the condition that his identity and that of his company remain anonymous.

I asked him, how can they justify such huge interest charges? His response was, “Because we can. There are loopholes that allow us to do this. This is a high-risk loan for the most part, so we need to charge enough to cover bad loans and make a profit.”

When asked if payday loans are a good idea, his response was “Sure. For example, if you are late on a $70.00 credit card payment and are charged a $30.00 late fee, then the Payday loan APR justifies getting 1. You’ll save points if you get a payday loan and don’t pay the higher interest rate late fee.”

When should you get a payday loan:

There are times when payday loans are justified as discussed above. The main example when your late fees are more expensive than the late fees paid to your creditors.

Another non-tangible justification is when you can avoid being sued for a late payment. This can be much more expensive than any payday loan fee, as it could affect the cost you’ll pay for future loans. This is especially true if it involves your mortgage or car payments.

Yet another reason to get a payday loan is to determine that the cost is worth it for you personally. If you are heading off on that long awaited vacation and could use a few extra bucks to enjoy and can afford the fees then you should consider this.

One final thought about when you should get a payday loan is if you need that cash and it’s free. So it’s free. There are many sites that charge ZERO interest to all first time customers. One such site can be found on low cost payday loans.

What to look for when getting a payday loan:

The first thing to look for is the APR. Federal law has required every lender to disclose the cost of any money borrowed through a Truth in Lending Disclosure. This must break down the cost by TAE (Annual Percentage Rate). This is the first thing to compare the loans by.

Another thing to look for is the length of the term. If two companies charge the same rate per hundred dollars borrowed, but Company A has a term of up to four weeks and Company B has a term of two weeks, choose Company A and take advantage of the extra four weeks. Company A’s APR is half that of Company B. The reason this differs from the first item is that they sometimes base the APR on a fixed amount of time (usually two or three weeks). When you read the fine print, the fee charge is fixed and may allow you to pay it over a longer period of time, such as four weeks.

The bottom line:

Do your homework when you get a payday loan, and look for free or low-cost payday loans if possible. The money you save can be substantial. Find lower cost payday loans and no fax payday loans. These no fax payday loans allow you to apply without faxing any documentation.