When it comes to interest rates and loans, traditional short-term loans have a bad rap, and for good reason. In particular, payday loans—intended to offer quick cash between paydays—come with fees and interest that grow quickly.

If you take out a traditional payday loan, you’ll often end up paying a lot more than what you borrowed, even if you make every payment on time. That’s usually thanks to a combination of fees and high interest rates.

The lowdown on interest

• Interest is an additional payment on top of the total amount of the loan you need to pay back.
• You can think of it as an ongoing additional payment charged by a lender, in addition to the total amount of the loan you need to pay back.

Interest can be good (if you’re earning it) or bad (if you’re paying it). When taking out a loan, you want to minimize the amount of interest you have to pay.

• How much you pay in interest is determined by the interest rate. This rate, set by the lender, is a percentage of the total amount borrowed.
• Interest rates on short-term loans can range anywhere from 30% to over 600% depending on your location, lender, loan amount, and financial status.
• The higher the interest rate, the more money you’ll be paying back to the lender overall.

How compound interest can increase the amount you pay back

There are also different kinds of interest, both of which can apply to a personal loan.

• When borrowing money, watch out for compounding interest, which gets calculated based on both the total amount of the loan and the interest you've already paid.
• Compounding interest is especially dangerous because you can end up paying much more to the lender than the loan amount itself.

Interest-free options

Safer borrowing options may be available to you through your employer.

Here at Exhale, our financial wellness benefits are sponsored by employers, so we can offer personalized loan terms based on employees' paychecks. Having this extra safety measure means we’re able to offer advances with no interest.

Not sure if your employer offers Exhale? Check at exhalefi.com or ask your employer.