Payday loans have become quite popular over the last few years as a way for people to pay bills that crop up unexpectedly. The ease of obtaining this type of loan is one of the reasons they are becoming such a big business. Although the interest rates are quite high, this has a way of being overlooked because they are available to keep the utilities from being turned off or putting gas in your car to go to work.
What is a Payday Loan?
The payday loan is a loan which you receive pending on repayment when you receive your next paycheck. They are usually very easy to obtain as long as you have a checking account, a pay stub and identification. Credit checks for this type of loan are very rarely done, which is a huge bonus for people with less than stellar credit.
The loan company will allow you to borrow a certain amount based on your pay. The maximum time you have to repay is usually two weeks. This will depend upon your pay schedule. This type of loan is usually approved in a matter of a few hours, almost always on the same day.
The borrower writes a personal check and postdates it for the date of their next payday. They receive the loan and they are expected to retrieve their check when they get paid. Or it can be set up for the loan advance company to deposit the check to receive their money.
Disadvantages of This Type of Loan
The payday loan can be a lifesaver for many, however it can also start a viscous cycle that is nearly impossible to break. When the borrower returns to pick up their check often they will be short again after paying for the loan. Then they borrow again and again.
Every time they get paid they need to renew the loan to make ends meet. And every time they have to pay the extra amount to the loan company when they pay off one loan and get another. This can add up to a lot of money over a period of time.
The interest rate you pay will vary but is usually very high. Certainly the interest rate is much higher than on a traditional personal loan, either secured or unsecured, but again, if the consumer needs the money right now, a traditional loan is not going to help. Plus if the consumer has bad credit, it may be difficult to get a traditional personal loan.
Are Payday Advances Helpful?
The only way to avoid the high interest rates and becoming caught up in the cycle of borrowing and paying back is to take only the amount you need. If you need $100 to make it until payday, do not be tempted to borrow more. You will have to pay it back and the fees are higher.
Take the least amount you can get by with on a payday loan and when it is due, pay it all and do not get another loan. This is a handy way of having the money for an emergency bill but the payday loan has to be handled responsibly.
Be responsible when it comes to borrowing money and you will not put yourself in the position of renewing the loan every payday. A payday loan can be very helpful when an emergency arises as long as it is a once in a while solution.
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