Life is full of ups and downs. Most people will run out of money at some point. A financial cushion can make any minor life change, mistake, or unplanned problem quickly into a financial disaster. Payday loans are tempting for many.
What is a Payday loan?
Payday loans are short-term loans usually for $500 or less. These loans are due on the next payday. These loans can also be called cash advance loans, post-dated check loans, check advance loans, deferred deposit loans and cash loans. A loan is a cash advance secured by the borrower’s personal check. This loan is for people who need quick cash to pay their next paycheck. Payday loans can be used to solve temporary cash flow issues quickly and easily. For most borrowers, payday loans are not easy and only temporary.
How can you get a payday advance?
The borrower mails a personal, stamped check payable to the lender indicating the amount they want to borrow and any additional fees. The lender pays the borrower the amount of the loan less the fee. The lender will pay the borrower the amount less the fee. The check will be deposited into the lender’s account.
Who uses these loans?
Anyone can get a payday loan if they have a regular income and a checking account. Borrowers who don’t have the funds to pay back their loans or are unable to save money will often use this type of lender. People with poor credit ratings and no credit history are more likely to use payday loans. These borrowers may become overwhelmed by fees and fall into a vicious cycle of debt. A study revealed that 80 percent of payday loan borrowers convert to repeat loans. This can result in higher fees for borrowers.
How much are these loans?
Here is where problems could arise. The cost of a loan can vary from $10 to $30 for every 0 borrowed. A two-week payday loan with a fee of $15 for $100 would have an annual percentage ratio (APR) close to 400%.
Payday loans can be a great option for people who need short-term cash, but they can also be quite expensive. These flashy advertisements should not be trusted. Instead, look at the following options for financial help.
Payday loans are not the only option
If your employer offers direct deposit, you can have money automatically deposited into your savings account. It won’t make a big difference, but it will help you get the money you need when you need it.
Contact your creditors if you are having trouble paying your bills and ask for more time.
Hawaii State FCU members have free access confidential credit counseling. HSFCU members have free access to confidential credit counseling and debt management plans.
Ask for a loan from a credit union. Credit unions can share the savings that they make by being a not-for-profit institution across all of their product lines. Customers can receive higher rates on savings accounts and lower rates for loans. Credit cards are also available at lower rates.
Cash advances with credit cards will result in lower interest rates.
Ask your employer to increase your salary.
Use your credit unions protection feature.
Ask your relative to send you money.
In dire circumstances, payday loans are often better than pawnshop loan. These loans are cheaper than payday loans, and unlike payday loans, there is an exit strategy for borrowers who cannot repay. The item will be retained by the lender and the borrower may walk away without further debt.
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Kathy Jane Buchanan is a Certified Financial Planner, with more than two decades of experience in writing about personal finances. She has written a variety of articles for PaydayChampion and has helped to simplify lending, investing, banking and credit as well as other topics related to personal finance for consumers. Kathy has worked for major financial companies and also worked for small credit unions. she founded a fee-only financial planning firm, Approach Financial Planning, located in Houston, Texas.