There is a very good chance that you have heard of payday loans at least once or twice before. Simply put, they’re literally everywhere these days.
There seem to be places to get payday loans on nearly every street corner in some cities. At the very least, local strip malls are hot spots for the businesses that give them. The Internet is another place where offers for payday loans seem to pop up on a regular basis. They can be a decent form of debt management during emergency situations.
But what is all the fuss about? What is a payday loan anyway? Why do so many people get them? And what about all of the bad publicity that they get? Can they really be as bad as people say?
Well, luckily, there is a reasonably straight and easy answer. It just takes wading through a bit of muck to find. Project Debt Relief has put together today’s post to clear up some of the confusion, answer some questions, and give you the straight truth on payday loans.
What is a Payday Loan?
In its most basic sense, a payday loan is a small loan that does not require you to have good credit. In fact, a credit check is not required at all. The general amount for a payday loan is about $500. $1000 is usually the maximum amount offered. The point of a payday loan is to just get you by until you can make a little money to pay the loan back and get yourself back onto your feet. They’re a relatively easy way to get emergency money when you really need it.
Payday loans also stick out for their short terms. They must be paid back very quickly, within these terms, usually within a few pay periods (hence the term ‘payday loan’). At the same time as they are required to be paid back quickly, payday loans also have very high interest rates. Many even have extra fees and penalties tacked on for late payments.
How Do Payday Loans Work?
The way that payday loans work is very simple. You basically write a post-dated personal check that is made payable to your lender for the amount that is being loaned to you. Usually a finance fee is added on top of this. The lender will then advance you the amount for the check and set a payment period which, as mentioned above, is generally 14 days.
When the payment period is up, you are required to pay the lender the amount owed in cash or let them write the check. If you do not pay the check by the end of the agreed upon payment period, then additional overdue fees and finance charges will be added to the overall amount that you owe.
When Are Payday Loans a Good Idea?
Payday loans are certainly not for everyone. However, nearly anyone with a checking account and a steady income is eligible for one.
They really should only be taken out in an emergency situation, when you really need a little extra money. Furthermore, they should only be obtained when you know that you will be able to pay the money back promptly. You should never go and get a payday loan when you are unsure of future income.
Examples of expenses that many people use payday loans for are medical bills, car repairs, and other one-time expenses. Payday loans can keep you from falling into serious debt.
What Are Some of the Negatives of Payday Loans?
Payday loans come with a lot of negative stigma attached to them. For one thing, many people consider them slightly scammy. This, however, does have basis in fact. Many lenders for payday loans are just looking to tack on high financing and late fees to make extra money.
That is why it is absolutely critical that you know you are able to repay the debt during the agreed upon time. If you don’t, you will be charged incredibly high additional fees. For many people the risk isn’t worth it. It is better to investigate other quick loan routes rather than be stuck in an endless payday loan cycle.
What Are Some Alternatives to Payday Loans?
Luckily, there are many alternatives to payday loans. These are worth investigating before turning to a payday loan as they are to be used as a last-ditch emergency solution.
- First try to negotiate a payment plan with your creditor
- Try charging the amount to your credit card
- Ask your employer for an advance
- Use your bank’s overdraft protection policies
- Attempt to obtain a line of credit from an approved lender
- Take money from your savings account
- Ask a relative or close friend for help
- Apply for a traditional small loan
If none of the above options are going to work for you, then a payday loan might be your last option. If this is true, look around and do your research so you can find a trustworthy lender.
The truth about payday loans is that there is more than meets the eye. They can be very useful but only when gone about in the proper way. It is essential that you understand what you are getting into and that you have first investigated other options.
It really isn’t recommended to get a payday loan unless you absolutely have to. You could just end up paying a lot more money than you need to. It’s better to use one of the other methods discussed above even if it takes more effort.