By now, I’m sure we’ve all seen the commercials out there for payday loans. It’s quick, easy money when you need it. But is getting a payday loan worth it? Is it really something that you should consider when you need money? This was something that my ex and I had once discussed, before we ultimately decided to ask for a credit extension on one of my credit cards. Looking back, I wish I hadn’t done it, but what’s done is done. I also, at the time, applied for a loan from the bank- which again, I wish I hadn’t. I would have liked to have been more mindful with my money, but… well, things happen. But, what works (or didn’t) for me, might work for you. So should you get a payday loan? Why don’t we look at exactly what a payday loan entails.
What is a payday loan?
A payday loan is a loan that requires the borrower to write a post-dated check for the amount to be borrowed, plus a finance charge. The lender then gives the borrower the money, and when the borrower gets paid, the check is cashed. There is no credit check, and the only requirements are an active checking account and a regular source of income.
These loans are normally granted by companies that are not banks; they lend small sums of money and require very little paperwork. The loans are accessible to most people, although they typically need to be repaid within two weeks.
If you are considering a short term, payday loan, do not borrow any more than you have to. Payday loans should only be used to get you by in a pinch and not be used for extra money from your pocket. The interest rates are too high to borrow any more than you truly need.
One key tip for anyone looking to take out a payday loan is not to accept the first offer you get. Payday loans are not all the same and while they generally have horrible interest rates, there are some that are better than others. See what types of offers you can get and then choose the best one.
If you do not have sufficient funds on your check to pay back the loan, a payday loan company will encourage you to roll the amount over. This only is good for the payday loan company. You will end up trapping yourself and never being able to pay off the loan.
Make sure you select your payday loan carefully. You should consider how long you are given to pay back the loan and what the interest rates are like before choosing your payday loan. See what your best options are and then make your selection in order to save money.
Always read all the terms and conditions involved in a payday loan. Identify every point of interest rate, what every possible fee is and how much each one is. You want an emergency bridge loan to get you from your current circumstances back to on your feet, but it is easy for these situations to snowball over several paychecks. If there are penalties associated with paying off early, it is up to you to know them up front.
Some lenders charge a fee if you have to roll the loan over to your next pay period. These are the most common, but they may charge other hidden fees or even increase the interest rate if you do not pay on time.
If there is anything that you do not understand, do not sign.
Payday loan companies charge insane amounts of interest. The loans they make have an average APR of 400%, but some charge as much as 5,000% interest. And you though interest was high on credit cards!
Because of the high interest, payday loans are illegal in some states. Other states allow them, but due to strict regulations, payday lenders may choose not to operate in some of these states.
Whenever possible, try to get a payday loan from a lender in person rather than online. There are many suspect online payday loan lenders who might just be stealing your money or personal information. Real live lenders are much more reputable and should offer a safer transaction for you.
If you are considering getting a payday loan, make sure that you have a plan to get it paid off right away. The loan company will offer to “help you” and extend your loan, if you can’t pay it off right away. This extension costs you a fee, plus additional interest, so it does nothing positive for you. However, it earns the loan company a nice profit.
Make every attempt to pay off your payday loan on time. If you can’t pay it off, the loaning company may force you to rollover the loan into a new one. This new one accrues its own set of fees and finance charges, so technically you are paying those fees twice for the same money! This can be a serious drain on your bank account, so plan to pay the loan off immediately.
When should you get a payday loan?
If possible, it is best to avoid payday loans altogether. If you can borrow money from a friend or relative or postpone the expense until after you get paid, you’ll be much better off. But there are certain situations in which a payday loan can be helpful.
Some people take out payday loans to get their cars repaired. If it’s an urgent repair and you need the car to get to work, it’s probably better to go ahead with the payday loan if there is no other alternative. Or if you need to see a doctor and do not have insurance, a payday loan could get you the medical care you need. But if your situation is not an emergency like these, there are probably alternatives that are not as expensive or risky.
Before you get a payday loan, it’s important to consider all of your alternatives. If the expense can wait, or if you can get the money some other way, you’re better off leaving payday loans alone. And if you do end up getting a payday loan, it’s important to pay it off as quickly as possible. If you don’t, it could get you in more financial trouble than you’re already in.
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