Payday Loans: Personal Finance Savior Or Disaster?
Written by: Joel Walsh
Summary: You need a small amount of financial help fast, but you heard payday loans can be expensive and dangerous. What now? Find out how to avoid the dangers and reap the benefits of payday loans.
Payday loans may be right for you if you need some money for a short time and have no other option. Car repairs, medical emergencies and other unexpected expenses can really strain your finances. Some weeks last longer than your wages do. So you simply borrow enough to tide you over until your next payday.
There are two kinds of payday loans:
1) online payday loans
2) in-person cash advances.
Both kinds of payday loans are convenient, quick, private and easy.
. Convenient: You can apply for an online payday loan using your computer. You don't have to deal personally with a loan officer when you apply for or request an extension for your payday online loan.
. Quick: The online payday loan takes only a short time to complete and usually doesn't require any other documentation. Web payday loans are approved in minutes--virtually "guaranteed loan approval." The cash could be in your bank account within a day.
. Private: You apply for an online payday loan at home. No bumping into nosy neighbors while waiting in line at the bank!
. Easy: There are few online payday loan application requirements. The loan amounts are smaller than conventional bank loans so the paperwork is less. Generally, you just need to be at least 18 years old, have a job (so you have a payday) and earn at least $1000 a month.
Note: a payday cash advance loan is a little different from the online loan. All you do is give the lender a post-dated check or some personal information like a credit card number and you get your cash advance on the spot. When you repay the loan on payday, you get your check back. Of course, it lacks the convenience and privacy of applying online.
Avoiding Payday Loan Dangers
So, what about your friends' warnings? Yes, payday loans can be quite expensive. Interest rates are high--sometimes as high as 700% a year! You may also be charged other fees. But you can get around these by following the advice below. A little headwork can save a lot of headache.
. Trust only payday loan lenders with good reputations. Remember, you're giving them personal financial information like credit card or checking account numbers so you want to deal with honest people. On the lender's website, look for the BBB (Better Business Bureau) logo.
. Make sure you check the annual percent rate (legally, you must be told this) and shop for the best rate. If you didn't think payday loans could be expensive before, this APR might be an eye-opener, especially when you remember that credit card usually offer 7%-27% APR.
. A few companies offer no interest loans to first-time borrowers. Find them. Be aware of the length of the loan and any other terms to help you choose the best payday loan lender. Be sure you know the total amount you'll have to repay before you take the cash.
. Always read the fine print.
. Pay the loan when it is due, on your next payday. The payday loan period may be extended, but you'll have to pay additional (and large) interest and finance fees. Also, if you do not repay the loan with your next paycheck, the lender may even automatically renew the loan by withdrawing the fees from your checking account. This could cause you to be overdrawn and incur penalties from both the lender and your bank.
Meet Frank: A Real-World Payday Loan Story
Frank's car broke down and he needed $300 fast. Panicking, he went online and chose the first web payday lender he found. He filled out the simple form and had his money in his checking account the next day to be repaid in a week. The fee was $30.
When payday came, Frank couldn't afford to pay back the $330 so he asked for an extension, which he got for another $30. So the next payday Frank had to pay $360 to cover his $300 payday loan.
If Frank continued doing this for a year, he would end up paying $1560 in fees. Most likely, the lender wouldn't let the loan ride for that long. But this shows how expensive the payday loan fees really are, when you compare them with the interest on bank loans or even credit cards.
What should Frank had done?
. Frank should have looked at more than one web payday lender, checking for the best terms and lowest interest rate.
. After choosing a lender, he should have checked it out with the Better Business Bureau to be sure it is reputable.
. He should have had a plan for repaying the web loan before he got the money so that he could have paid the loan on payday and not needed an extension.
So, how can you do better than Frank?
Payday loans or cash advances are lifesavers for short-term, small cash problems. With thought and care, you can solve your temporary money problems quickly without making your long-term financial situation worse. Start your search for a great payday loan at a reputable website today.
About the Author
Joel Walsh suggests you start here to find good lenders of payday loans: http://payday-loan--online.com [Web publication requirement: create live link for the URL/web address using "payday loans" as visible link text/anchor text.]
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