Assume you borrow $400 for two weeks at a cost of $15 per $100 per two weeks. At end of two weeks, you owe them a total of $460.

Let's say you don't repay $400 at end of two weeks. Instead, you request a rollover. So you pay them lending fee of $60 and they agree to roll over loan for another two weeks. The total cost of loan at end of 4 weeks may be as follows:

Original loan amount: $400 Fresh lending fees payable: $60 Late fees payable: $60 (assuming late fees apply at same rate as lending fees) Lending fees already paid: $60 Total: $580

At end of this period (which is 4 weeks from day you originally took loan), you decide that you don't have $580 available and so request them to roll loan over for another two weeks. Then this is what it can cost you in total at end of 6 weeks:

Original loan amount: $400 Fresh lending fees payable: $60 Late fees payable: $60 Lending fees already paid: $120 Late fees already paid: $60 Total: $700

If you continue this process for six months (more specifically, for 24 weeks), this is what it may cost you in total:

Original loan amount: $400 Fresh lending fees payable: $60 Late fees payable: $60 Lending fees already paid: $660 Late fees already paid: $600 Total: $1780

For an original loan of $400, in a mere 6 months, payday loan company will collect fees and charges of $1380 from you. That's 3.45 times amount you borrowed. In APR terms that's 749.5%! If over 60% of borrowers roll over their loans, no wonder many payday loan companies are extremely profitable.

Snowballing costs can easily lead you into a debt trap if you get addicted to payday loans.

So what are key points to keep in mind when dealing with payday loan companies? Two things:

First, avoid them (and other high cost borrowings) if at all possible. The best way is, of course, to get your finances fully under control so that you always have cash and / or credit available to meet emergencies.

Second, if you do choose to borrow from payday loan companies, borrow only an amount you're 100% sure you can repay on due date. If that amount is too low to meet your needs, get additional funding from other sources. Because rolling over cash advances is one of worst things you can do to yourself.

A "convenience" for customers? Not at these rates.

What does this remind you of? It reminds me of payday loans and cash advances. That’s other kind of lending that costs you such sky-high APRs. In fact, if you choose to repay a cash advance on due date and not roll it over, you'll likely be charged far less than what banks charge you for an overdraft.

It gets even worse. Banks have software that ensures that your largest value checks and debits get processed first. There may be some logic to that. However, this arrangement also means that when there are insufficient funds in your account, instead of paying one overdraft charge on one large check, you pay several charges on several smaller checks!

Plus, most customers don't even realize that they are overdrawn until bank notifies them about it.

Consumer advocates say that banks are perfectly aware that many people barely make it from payday to payday. These customers typically have very low balances. Rather than offer them a service that would be in their interests, banks extract high fees from them to cover bounced checks.

If you are caught short between paychecks, consider arranging funds from other sources rather than turn to overdraft protection. The best solution to problem is to systematically build up cash balances so that you don't face such a situation in first place.