Payday loans, which often come at exorbitant interest rates, are no one’s idea of the best way in which to obtain a loan. They often appear to prey on the poor and the vulnerable. However, they exist because they fill a need, that of short-term low loan amount credit. This need exists for two reasons.

One, there are a great many low-income jobs in this country that often leave those workers with insufficient income to meet their immediate needs for rent and food and second, banks do not handle these types of loans because they do not find them profitable enough. Unfortunately, because of the way these payday loans are structured, they are designed to lead to financial ruin.

Some studies suggest that these loans reduce bankruptcy filings in some communities. This may appear to indicate they improve the conditions for their recipients. On the other hand, such a finding may simply demonstrate they mask the financial distress by taking borrowers on what the head of the Consumer Financial Protection Bureau (CFPB) described as “a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey.”

Because borrowers are encouraged to take on more debt to “manage” the debt they already cannot afford to repay, the predatory cycle repeats, costing borrowers ever more of their limited income. In a situation like this, a bankruptcy filing may be far more effective at permanently reducing their insurmountable debt.

Of course, the real solution would be better-paying jobs that would allow workers to avoid the need for a payday loan in the first place.