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If you look around the internet and the phone books you will see a plethora of companies that are offering payday loans these days. What are the facts about these payday loans and their pitfalls? There are varied opinions as to the benefits compared to the negative aspects and you can read below to find out honest answers to help you decide.
Explanation of a payday loan:
Some people call these types of loans a cash advance and some are called payday loans, but they are basically the same thing. It is a loan that is granted for an approved amount that has a date of satisfaction that must be met. The due date will be your next payday and you will write a postdated check to the lender that they will be able to cash on your pay date. The charges for their services will be included in the amount of the postdated check. For example, if you borrow $250, the check would be written for $300, which will include the $50 that is charged for their services.
They are advertised to be for emergency purposes for consumers that run short between paydays and need some extra cash. Although this is the intended use for the payday loan, the service is sometimes abused and costs tons of money in fees accumulated by not paying them off when they are due.
There are very few requirements in getting one of these loans, which is why they are pretty popular. A checking account and a monthly income is all that it usually takes to obtain approval, without any type of credit review. Sometimes, there will be a requirement that you use direct deposit of your paycheck, because they are more assured of getting their money.
The most obvious positive benefit is the fact that you get the money that you need, when you need it. When an unexpected incident occurs and you are getting past due on your other bills, it is an advantage to have access to money for your bills. You will not incur late fees on your past due accounts when you have the money to pay them instead of waiting until your next paycheck. The fact that any credit standing is acceptable will make this another positive thing in obtaining one of these loans.
It can become a situation similar to a catch 22, where you have borrowed money to pay bills until next week and when you pay the loan off in a week, you may not have enough money for the week ahead. So, there will be no choice but to renew the payday loan until the next weekís paycheck causing you more fees. This cycle could go on indefinitely and can ultimately put you into a double bind.
Make sure that you shop for the best rates and the lowest fees before you decide. Also, be sure that you pay off the payday loan as soon as possible to stop future charges from being incurred.
Borrow only the amount that you need to pay the emergency expense so that you will be able to pay it off with your next paycheck without putting yourself out of money for the week.