A trap representing a payday loan pitfall.

The Pitfalls Of Payday Loans In College

Are you in college and find yourself short on money? Be careful with payday loans because they ca be financially dangerous. Let’s take a look at why payday loans are problematic and search for some better solutions.

Your college years are an exciting time in your life, but they are not without their challenges. The often poor college student will face a number of financial challenges over the years. As a student, when you come up short on cash, you may think about turning to payday loans. After all, you see them advertised everywhere and they look like an easy way to get the money that you so desperately need.

The biggest problem with payday loans is the thing that makes them so attractive. They are easy to get, too easy. Before a person even has an idea of what they are getting themselves into, they have cash in hand. So, before you rush in and take out a payday loan, let’s look at why they are financially troublesome and look at some better alternatives.

The Scoop On Payday Loans

While payday loans might be a legitimate solution for some, and we certainly offer free loan quotes, they come with a number of disadvantages. These are things that you should know, going in. Take a look.

High Interest Rates

While most payday loans come with fees, the effective interest rate can be astronomical. In fact, the reason that most lenders charge fees instead of interest is to disguise how costly these loans really are. Because of the high fees and short terms of the loans, most payday loans come with effective interest rates of 400 percent or higher. This makes it easy to see why these loans are just so profitable for lenders.

Debt Cycle

The structure of a payday loan makes it more likely that a borrower will get into a cycle of debt. The loan is intended to be paid back in full in a short period, just 10-14 days in most cases. This leaves a borrower with little time to recover from their financial difficulties. That means that oftentimes, they are unable to pay the debt in full.

If a borrower can not pay the loan back completely, they are left with an option to renew the loan by paying the current fees and not the capital. They must then, once again, try to pay back the entire loan plus new fees in one lump sum. Many people have found themselves trapped in this cycle, never being able to pay off the loan in full.

Negative Credit Impact

While payday loan lenders will rarely report a successfully paid loan, they will very likely report one that is defaulted on. This means that payday loans can only really have a neutral or negative effect on your credit. By comparison, most traditional loan lenders will report favorable information to credit bureaus.

Payday Loan Alternatives For College Students

Despite all of the negatives, thousands of college students are still rushing to payday loans. Maybe it is because they do not realize that they have alternatives and there are alternatives. Take a look at some other ways to get money for an emergency expense.

School Emergency Funds & Scholarships

Many colleges and universities have funds at their disposal that they can use to help students in need. Before proceeding with your payday loan, document your need and consult with the financial aid office.

Part Time Work

Nobody wants to work more during college, but if it means avoiding a costly loan, it may be an option to consider. You might even be able to put this work towards your career goals by participating in a work-study program.If that doesn’t pan out, there are still a number of part time activities that you can consider such as delivering food and walking dogs. These are jobs that will likely fit very well with your schedule.


If the reason for your money problems is paying tuition, you may be able to negotiate a payment plan that will allow you to stay in school while you resolve your money issues. Other creditors, such as credit card or auto loan companies, may also be willing to negotiate with you.

Family Support

You might be surprised at just how much your family and friends are willing to help you in a time of need. This is especially true if they see you as a successful college student trying to make a good life for themselves.

Summing It All Up

Payday loans have their place, but they should rarely be used by struggling college students. If you are considering taking out one of these loans, think long and hard about it. Then, pursue every option that you can that does not involve a loan. It may take more time to solve your financial issue, but the time will be well spent.

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James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.