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A payday loan can seem like a quick fix when you need cash. But the cost is often much higher than you might think.

Payday lenders don't run credit checks. That doesn't mean your credit won't be damaged.

A better option is to get help from a credit counselor. They can help you develop a budget and save money.

What are they?

A payday loan, also known as a cash advance or check advance loan, is short-term credit that's typically based on your income. They can have high fees that can add up quickly and can create a cycle of debt.1

They don't require a credit check, which makes them accessible to people with bad credit. But they usually don't report your repayment history to the credit bureaus, so they won't help you build credit.

Many states have laws in place regulating payday loans. These may include restrictions on repeat borrowing or the amount of time you can have a payday loan out.

How do they work?

As the name implies, payday loans are short-term — usually due in two weeks or one month. The lender typically asks borrowers to write a postdated check for the loan amount plus fees or give permission to electronically withdraw money from their bank account. If the borrower can’t pay by the due date, they can roll over the loan (which extends the repayment period) but that comes with additional fees.

A payday loan can be tempting for people with limited cash reserves and less-than-sterling credit histories. But payday lenders don’t check whether a borrower can repay the loan, and if they don’t, it can lead to a debt-collection hell that wreaks havoc on credit scores.

Rather than turning to payday loans, families who find themselves in financial hardship can try reaching out to community organizations or taking advantage of "buy now, pay later" apps that allow them to split up purchases into equal installments at zero interest. It’s also important to work on creating a budget and building an emergency fund.

What are the benefits?

For many people, payday loans are an easy way to cover expenses for a couple weeks before getting paid again. However, they can also trap you in a cycle of debt. Payday lenders typically charge high fees, don't check your credit and roll over loans automatically, causing you to incur more interest each time.

Local banks and credit unions often offer personal loans with lower rates than payday lenders. You can even apply with a cosigner to boost your chances of approval and build credit history.

Asking friends or family for help is another option. And if you're desperate, Payday Loans Indianapolis consider asking a non-profit organization focused on debt management or an Accredited Financial Counselor. These organizations can provide free advice and help you create a plan to manage your debt and budget for the future. Lastly, it's important to shop around and compare rates before you choose a lender. Payday Loans Cincinnati loan rates are usually higher in communities of color, which can be a form of predatory lending.

What are the drawbacks?

While payday loans get a lot of bad press, they are an excellent option for short-term cash emergencies. They’re quick, hassle-free and don’t require a credit check. However, they’re also expensive. They often come with a staggering interest rate, and borrowers can end up in a cycle of debt by paying fees just to roll over an outstanding balance.

Payday lenders target financially strapped customers who can’t qualify for traditional credit cards, and many people who take out the loans are repeat borrowers. According to Pew, they use the loans to cover unforeseen expenses and make emergency payments like utilities or rent.

To avoid falling into the Payday Loans Indianapolis loan trap, try to save up for major purchases instead of borrowing money. You can also use community resources such as food banks and soup kitchens. Another good idea is to look for ways to boost your income, such as by clocking in overtime or taking on a side hustle. Finally, seek help for any underlying financial issues that keep you reaching for the paycheck loan. A credit counselor can help you create a budget and start saving.