So you’ve just received this month’s electric bill, and it’s high enough to pay for some middle exec’s Hawaiian vacation. Or the stove finally gave out, and you’re limited to cooking for your family on a tabletop electric grill. Or the transmission in the car you just bought – the one cousin Ed promised would run another 100,000 miles – fell apart in the driveway. Whatever the reason, you have a financial emergency, and you need extra cash NOW.

I’ve been there. There are few worse feelings than laying awake at night, wondering how you’re going to come up with the money to pay for an unexpected expense. Holy crap! What am I going to do?

Suddenly, you have the answer.

Yep, payday loans are everywhere. And now, you don’t even have to deal with the hassle of driving across town to apply for a cash advance. That’s because there are hundreds (maybe thousands) of payday lenders online that will lend you money, sometimes without ever talking to you in person.

But my credit sucks. I’d never be eligible for a payday loan anyway.

Wrong. Good or bad, there are plenty of cash advance lenders who approve people with bankruptcies, repossessions, charge-offs and all other manner of credit issues.

But don’t celebrate just yet.

Here’s the thing: These lenders know that a certain percentage of borrowers won’t ever pay their loans back. That’s just the nature of lending money to people who have already had problems. (That’s not a blanket statement about “people with bad credit” – it’s just reality. Most credit challenged consumers are victims of circumstance, but there will always be some that abuse the system.)

So how do they make money if a percentage of borrowers are essentially stealing money?

They charge ridiculous interest rates.

It’s not uncommon for a bad credit cash advance loan to carry an interest rate of 25%. That’s not an annual percentage rate (APR) – that’s the interest for the life of the loan, which is usually two weeks or less. That means that in order to borrow cash for a week or two, you’re going to have to pay back the loan PLUS a quarter of the loan amount.

To put it into perspective, let’s look at an example:

Let’s say you need to borrow $1,000 until your employer hands you your paycheck next week. Assuming a 25% interest rate, the payday lender will deposit $1,000 into your checking account. When you get paid, the lender will withdraw the $1,000… PLUS a $250 interest charge!

Not quite a century ago, people who charged fees like that wore dark suits, broke people’s kneecaps and fitted late-paying clients with concrete shoes. Today, those kinds of charges are “business as usual.”

$250 is a helluva lot to pay for the privilege of borrowing $1,000 for a couple of weeks. If you don’t have $1,000 now, are you really going to have $1,250 to spare 14 days from now? If you’re like most of us, the answer is usually “no.”

Unfortunately, the high interest charges aren’t even the worst news. Next time, we’ll look at how things can get even worse.

-Mike