When the bank turns someone down for a loan or line of credit, that person might see bad credit loans and payday loans as the light at the end of a long, dark tunnel. Lenders usually don't pay much mind to credit history, and the loans are easy to obtain. This may seem too good to be true, and sometimes it is. Before applying for a bad credit or payday loan, it's important to do your research and understand exactly what you're signing up for.

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1. The Interest is Extremely High

If you're considering a payday loan or bad credit loan to get you through a tight spot, it's imperative to find out exactly what interest rate you'll pay, and how it's compounded. Usually, the interest rate on bad credit and payday loans is 35 times that of a credit card loan and up to 80 times more than mortgage rates. In the U.S., payday loan companies might charge up to 574% interest annually.

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