Learn The Truth About Payday Loans And What To Avoid!
Payday loan, finance companies, credit companies and others are making small, short-term, high-rate loans that go by a variety of names: cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans.
Payday loans, unlike the secured loans do not require time consuming processes such as property valuation and credit check. Thus, they are approved quickly to help borrowers meet their immediate needs.
By Now, you've probably heard the advertisements on the radio or seen them in the newspaper or on late night TV for a pay day loan,
- GET CASH UNTIL PAYDAY!
- $500 OR MORE FAST.
- NEED CASH UNTIL PAYDAY?
- YOU CAN GET $50 TO $1000 WITHIN 30 MINUTES!
- NO CREDIT CHECKS.
A pay day loan may be helpful when you are having temporary cash flow problems or are facing a financial emergency and need money on a short-term basis.
You should attempt to pay your loans in full when it matures. If you are unable to do that, you should make every effort to pay at least part of the amount financed before you renew the transaction.
Usually, a borrower writes a personal check payable to the lender for the amount he or she wishes to borrow plus a fee. The company gives the borrower the amount of the check minus the fee.
Fees charged for loans are usually a percentage of the face value of the check or a fee charged per amount borrowed - say, for every $50 or $100 loaned. And, if you extend or roll-over the loan - say for another two weeks - you will pay the fees for each extension.
Under the Truth in Lending Act, the cost of payday loans - like other types of credit - must be disclosed. Among other information, you must receive, in writing, the finance charge (a dollar amount) and the annual percentage rate or APR (the cost of credit on a yearly basis).
A cash advance loan secured by a personal check is very expensive credit. Let's say you write a personal check for $115 to borrow $100 for up to 14 days. The check cashier or payday lender agrees to hold the check until your next payday.
At that time, depending on the particular plan, the lender deposits the check, you redeem the check by paying the $115 in cash, or you roll-over the check by paying a fee to extend cash advance loans for another two weeks. In this example, the cost of the initial loan is a $15 finance charge and 391 percent APR. If you roll-over the loan three times, the finance charge would climb to $60 to borrow $100.
Top 7 Alternatives to A Payday Loan!
There are other options. Consider these possibilities before choosing a pay-day loan,
- When you need credit, shop carefully. Compare offers. Look for the credit offer with the lowest APR - consider a small loan from your credit union or small loan company, an advance on pay from your employer, or a loan from family or friends.
- A cash advance on a credit card also may be a possibility, but it may have a higher interest rate than your other sources of funds: find out the terms before you decide. Also, a local community-based organization may make small business loans to individuals.
- Compare the APR and the finance charge (which includes loan fees, interest and other types of credit costs) of credit offers to get the lowest cost.
- Ask your creditors for more time to pay your bills. Find out what they will charge for that service - as a late charge, an additional finance charge or a higher interest rate.
- Make a realistic budget, and figure your monthly and daily expenditures. Avoid unnecessary purchases - even small daily items. Their costs add up.
- Check with your employer, credit union or housing authority for no or low-cost credit counseling programs.
- If you decide you must use a payday loan, borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to the next payday.
When you have more than one payday loan outstanding, you may find it very difficult to pay the required finance charge payments, much less paying all or a portion of the amount financed when the loan comes due.
If you need a larger, longer-term loan, you should seek other, more traditional, lending sources.
Many lenders now are beginning to list past due accounts with the credit bureaus. This may affect your ability to get credit in the future.
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