The Shocking Truth about Payday Loans
Payday Loan Facts
A short term loan that you can utilize to sustain you during bumpy times in regards to money problems is called a payday loan. Before applying for a payday loan, there are numerous things you need to know about. You must know the detailed costs and penalties to avoid losing too much money. In this article, I have written a synopsis on how exactly payday loans work. I will also attempt to give you additional facts and information about the secure business deals and proper usage of this type of loan.
Payday Loan Definition
If a person is in grim financial problems and needs money, payday loans are loans that are often obtained. Usually payday loans are only given in small amounts and they can help you through hard times when you are briefly out of cash. These loans are usually set up for at least two weeks before payment is due.
The person that is applying for the loan normally writes a check for the amount that is being borrowed including a fee. The borrower then leaves the check with the lender in return for the cash.
When the loan is due in two weeks, you don’t necessarily have to repay it at that time. Lenders like you to roll over the loan and extend it for two more weeks. You will find it amazing how quick the fees build up.
The Costs of Payday Loans
Payday loans are normally quite expensive. People who take out payday loans could pay an astronomical annual percentage rate (APR). For example, someone who borrows $200 to be paid back in two week will usually pay a fee of around $40. Unfortunately, if that person isn’t able to pay back the loan on time, they will find it very alarming that the fee then increases even more. The percentage rate can be quite shocking particularly for those who have a limited amount of funds anyway.
The Dangers of Payday Loans
One of the main drawbacks of payday loans is the loan company really doesn’t solve the problem of your financial troubles. They only make the problem at hand even worse because of the high percentage rates they are commanding from their borrowers. The loan company does not care what your particular problem is, as long as you pay back the amount you borrowed along with the fee they charge. Since the fee they charge to borrow the money is so high, instead of actually helping you out, it only takes you further in debt.
Payday loans can come in handy in times of crisis but people must consider all the risks of taking out the payday loan. At times these loans seem sensible especially to the person borrowing the money that needs it so much. This would only be relevant for short term payday loans not long term payday loans. Those are totally different.
There is also the problem of things getting further out of hand. If you don’t pay the loan back on time and don’t roll it over to extend the loan, the company may put your check through the bank and it could bounce. This could cause serious troubles with your credit. What would happen then is the banks would not want you to have an account with them plus you would have further charges to take care of.
Payday Loan Substitutes
There are other options to use instead of payday loans.
Here are a few:
1. Have a separate emergency fund as in a savings account but often this is not always easy
2. Have a credit account just for emergencies
3. Try to get a part time job (unfortunately this will take time and won’t be useful when a crisis says you need the money now)
4. Try to borrow from a friend or family for a honest and better deal
So before you run to that friendly payday loan company, give it a lot of thought and see if there is maybe a better and more economical way to get the money you need.