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Sometimes when things become a little tough, we do things without too
much thought. Usually because we want to put the tough thing behind us
and move on. This can result in jumping in on payday loans and
regretting it later. Payday loans aren't all that evil as long as you
know what you're getting into and you take some time thinking about
actually doing it and how you'll later terminate the loan.
To begin with, payday loans aren’t always a good choice! Don’t get
tricked by the ads from the mall, radio, television or Internet. Even
if you desperately need some cash until your payday, you should
consider all the alternatives first. In my opinion, a brief definition
for payday loans is expensive cash.
Payday loans are short-term cash loans. The amount of money that can be
borrowed regularly ranges from $100 to $1,000, and it depends on the
laws of each state. The average term is about two weeks. Payday loans
are made by check cashers, finance companies, payday loan stores, and
others. They are also designated as cash advance loans, check advance
loans, deferred deposit check loans or post-dated check loans.
This is how it usually works: the borrower writes a personal check for
the sum borrowed plus a fee and he receives the amount he or she wishes
minus the fee. Fees are regularly a percentage of the value of the
check, but they can also be a fixed value charged per a specific amount
(like $15 for each $100 borrowed). When the next payday comes, the
borrower can redeem the check for cash. Otherwise, he can pay the
finance charge again and roll the loan for another two weeks.
To get an idea of how expensive payday loans are, you must know that
this type of loan costs on average 470% APR (annual interest), while
the APR a credit card is rarely higher than 60%.
Let’s assume you want to make a payday loan for the amount of $300, the
loan fee is of $17.50 per $100, and the loan term is 14 days.
Therefore, in order to redeem the check you have to pay $352.50 when
the 14 day period is over. You can pay it by cash or you can allow the
check to be deposited at the back. If you still don’t have this money,
you must pay the fee of $52.50 to renew the loan for another loan
period. This means that borrowing $300 for a month will cost you $105.
That’s not cheap at all! By comparison, a $300 cash advance on an
average credit card, repaid in one month, would not cost you more than
$15.
All you need to get a payday loan is an open bank account and a steady
source of income. However, lenders are not necessarily interested to
find out if the borrower can afford to repay the loan. If you don’t pay
the loan, it becomes an uncovered check in your bank account. If you
fail to repay it, you will get a bounced check fee from the lender and
from the bank. You will receive negative ratings on specialized
databases and because of this you might lose your bank account and have
difficulty in opening a new one.
Because of the very high cost to borrow and the short repayment terms,
the consumers sometimes tend to be trapped in repeat borrowing cycles.
Reports show that almost 60% of all loans made every day are either
loan renewals, or loans taken out by the same consumer immediately
after paying off the last one.
Payday loans with three-digit interest rate are prohibited in twelve
states in the USA, where they are considered to be small loans or usury
caps.
The internet payday lending has become very popular lately. You can
apply online and loans are directly deposited into your bank account.
When the payday comes, the amount of money you’ve borrowed is
electronically withdrawn. If you choose to renew the payday loan, the
finance charge is electronically withdrawn from your account.
Here is a suggestion in order to avoid getting a payday loan. First of
all, shop carefully! If you really need that money, try to get an
advance on pay from your employer or borrow the money from family or
friends, at least you can do this for free (usually). Figure your daily
and monthly expenditures, and try to avoid unnecessary purchases. You
should also build some saving, so that there will be no need to borrow
money for unexpected expenses or emergencies. If you still decide you
want to use a payday loan, make sure you don’t borrow more than you can
pay with your next paycheck.
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