Payday Loans Not the Best Option

Payday loans are supposed to help people in tight financial times make it between paychecks.  They are small loans, between $500 and $1,000 typically, and have short terms for repayment.  Other names for the same product include paycheck advance, check cashing, and deferred deposit- regardless of the name, these loans offer borrowers a quick way to obtain emergency money- but they are not usually your best financial option.

The Price You Pay for Payday Loans

Payday loans are meant to be repaid in a very short period of time.  The reason many people get into financial difficulty with a payday loan is because they are not able to pay them back as quickly as they are supposed to.  A pay day loan that is not paid back before the specified date results in expensive additional fees, on top of the already expensive rates involved with a cash advance of this type.  For example, the annual percentage rate of a payday loan is averaged out to be about 400%- and a standard credit card APR is only 12%.  It is often a better financial decision to use a credit card if you have a need for emergency funds over applying for a payday loan.

How Payday Loans Work

If you have been living paycheck to paycheck and find yourself unable to set money aside for emergencies and savings, it can be very tempting to get pay day loans to help you during the stretch of time between one pay day to the next!  If you experience an emergency, let's say your car breaks down, you might think getting a $300 loan from an online payday loan provider (or another cash advance provider) is the perfect solution.  You'll be required to post date a check to cover the loan amount, plus a finance fee (on a $300 loan you can expect to pay a finance fee of about $40), and make the check payable to the lender.  You'll receive the loan amount, typically by direct deposit, and you'll have to pay it back- either with the post dated check, or with cash.  If you are unable to pay the loan and finance fee back before the end of the term, you will receive addtional fees and finance charges- and before you know it, you could be paying double what you borrowed!

Who Qualifies for an Online Payday Loan?

The reason payday loan companies have such a great business is that they accept anyone who has an income and a checking account, for the most part!  Payday loan applications do not require credit checks, so often people who have previous credit problems or no credit at all will apply for payday loans.  People with poor credit usually fall into the most financial difficulty using payday loans because they are often unable to repay them before additional finance fees are added to their loans.  It is common for pay day loan borrowers to take out ANOTHER payday loan to cover the first loan!

Advantages of Payday Loans

For individuals with limited available financial options, a payday loan is an easy way to get money quickly in the event of an emergency.  People who are able to make the payday loan repayment before the due date benefit most from payday loans.  Even if you have bad credit, you can have access to money if you have a steady income and a checking account.