Have You Ever Used A Payday Loan?
If you have never had one, you might ask yourself one clarifying question: Why do I need a payday loan?
If you have never had a payday loan, you might wonder why anyone would get one. After all, every loan accrues interest, so why get one for the short-term?
When someone is living paycheck to paycheck it's difficult to come up with quick cash for any unexpected bills. These could possibly include getting your car fixed, medical treatment or a quick visit to your parents that live out of town.
I know a lot of people are uncomfortable with the idea of borrowing money from friends and family. If you've ever done it, it may have been great, or it may have put a strain on the relationship.
In most cases, it can just be easier to work with people you don't know personally. Finding a professional to borrow the money from can mean that you take borrowing money more seriously.
With a professional lender, you are less likely to react emotionally and respect the transaction more. So then a payday loan for a short term solution may just be for you.
Advantages vs. Disadvantages
Once looking at all the pro's and con's of a loan like this, it may be easier to decide if it will work for you. Some of the advantages are:
- Application process is extremely easy
- No credit checks are made
- Money can be deposited directly into your checking account
- No upfront costs; repayment of the loan and interest and any applicable fees are at the end of the contract term
The disadvantages are subject to personal choices:
- Can you repay the loan plus the fees when your payday arrives?
- Is there any other way you can get the money?
- Are there things around the house you might be able to sell, or use for collateral?
These are good questions to ask yourself and will help you determine all angles of this decision.
How it Works
Now that you've decided a payday loan is the correct decision, let's go over the process. To help you visualize it, we'll go through a typical example.
Say the borrower needs a loan for two weeks until their next payday. Proof of employment, valid checking account and identification are provided to the lender.
Upon approval, the lender deposits $100 into the individual's checking account, and the individual authorizes a $115 withdrawal from their checking account when the loan comes due.
The $15 seems low for a fee, especially when you are in dire need of extra cash, but when you calculate the cost in terms of APR it comes to an interest of 360%. In two weeks, typically on your next payday, the lender will withdraw $115 from your checking account. The transaction is now complete.
Loan Extensions
If for some reason you are unable to repay the loan when the two weeks is up, make sure to call your lender and make payment arrangements before it is due. Most payday lenders are very flexible when it comes to extending your loan.
They will usually allow you to roll-over the payment until your next payday. There are some fees associated with a roll-over, but they are still cheaper than incurring an overdraft fee from your bank when the lender tries to take the money out of your checking account.
It is just advised that you avoid this if you can, and if you find yourself in an extension, to work quickly to pay off your loan before you're tempted by the next extension. It can get out of control quickly so make an educated choice about a loan like this.
Conclusion
Payday loans are great for emergencies when money is tight. Do your homework and make sure that it is the best short-term solution to your financial situation.
When you decide the time is right, go through the process like you're a pro! You've learned the ins and outs of the industry. Be confident that you've made a great financial decision.
by: Jack Landry
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