The dangers of payday loans are well documented. Consumers pay astronomical interest rates on small sums of money, often dragging them into a never-ending cycle of debt. Payday loans may be convenient, but is an Annual Percentage Rate of Interest of 300% to 400% worth that convenience?

Here’s how payday loans work: For $100 in cash now, you write the lender a check for $116.67, which is cashed in a week or two. A $16.67 fee for a two-week, $100 loan works out to an APR interest rate of over 434%. In comparison, even a very expensive credit card would only charge around 24% APR, or a $0.92 fee for that same $100.

When money is tight, the cash advance offered by a payday loan may seem tempting. But those interest rates and fees add up, even if you pay the loans back on time. Because these exorbitant fees place heavy burdens on an already stretched budget, borrowers of payday loans often have to return for more loans to pay back loans they’ve previously taken out. Almost half of all payday loan borrowers in Iowa take out more than 12 payday loans a year, leading to a yearly average of $480 spent on borrowing fees alone.

Recently, in an effort to make payday loans even more convenient and tempting, and ultimately get you deeper into debt, payday lenders have started making loans online.

BEWARE! It is often ILLEGAL for online payday lenders to make loans to Iowa consumers. Payday lenders must be licensed by the state in order to lend to consumers, and to be licensed, the lender needs a physical presence in the state. Iowa has put these laws in place to protect consumers and prevent them from getting scammed on the web.

What can you do instead? Pay yourself the fee instead of going to a payday lender or going online for an illegal payday loan. Put it into an Emergency Savings account and save it for emergencies. If you need emergency cash for important bills, search for alternative. For example, if you have a pressing utility bill, check first with the utility company about emergency assistance programs. If you’re having trouble paying bills month after month, seek debt counseling. Trying to pay debts with triple digit APR loans, especially when made illegally online, is likely to sweep your financial situation downward into a spiral of worsening debt.

For more information or to file a complaint about payday loans, contact the Attorney General’s Consumer Protection Division in the state that you reside in. You may also contact Center For Siouxland’s Consumer Credit Counselors at 712-252-1861 ext. 47 for questions. WE CAN HELP!