Everything You Ever Wanted To Know About Payday Loans

AdminBy AdminOct 27, 20170

The commercials are all over the place. Payday lenders tell you in bright, cheerful voices that you can get the cash you need in a flash; they usually stick a “testimonial” in there from someone telling you no one else would help him when he fell behind on his (insert necessary financial obligation) payments, but he went to Payday-Loan-Somebody and got the money he needed that same day!

Payday loans are pretty easy to get. The requirements are basic and payday loan companies won’t check your credit before approving you. If you’re truly in a bind and know you can pay the money back, they can be the quick fix to your financial problem. They aren’t a long-term solution, however, and can turn into a continual drain on your resources. Before you run out and apply for one, take a moment (or two) to consider the dangers of getting a payday loan.

What Are They Exactly?

What Are They Exactly?

Payday loans – also called cash advance loans, post-dated check loans or check advance loans – are very short-term loans that advance you money against your next paycheck. What you do is write the lender a check for the amount you want to borrow plus whatever amount the lender’s fees are.

The lender in turn holds this check until your next payday and lends you the cash you want. When payday comes, the lender deposits your check, the money is withdrawn from your account and the loan is repaid.

How Do You Get One?

How Do You Get One?

The requirements are simple, though the specifics may vary depending on the lender you go to. You’ll need a form of regular income, whether it’s from a job, self-employment, alimony, disability benefits, retirement income or so forth. You’ll also need proof of that income: pay stubs, recent deposit statement from your bank or tax returns from the previous year, if you’re self-employed.

You must have a bank account in relatively good standing. You might be turned down if you have a history of going into the negative; and if you’re currently in the negative, you probably don’t stand a chance. The lender has to deposit the check you write to make easy money off you; a negative balance is a good sign that check will bounce.

You’ll also need to provide basic identification: your driver’s license or social security card (sometimes both), proof of address and a reliable phone number. Depending on the lender, you may need to provide a few references.

There is no credit check and you’ll find that the investigation into your ability to repay is minimal.

What Are The Payments Like?

Interest fees are typically between $15 and $30 for every $100 you borrow, according to the Consumer Federation of America. So if you want to borrow $400, you’ll have to make out a check for between $460 and $520, depending on the lender’s policies.

Not only are these interest fees extremely high, you usually have to make the payment in full on your next payday, giving you approximately 14 days before that amount of money is withdrawn from your account. Even with having the best of intentions going in, many people aren’t fully prepared to give up what may amount to an entire paycheck without having time to save for it.

So what happens if you can’t pay? Either the lender will allow you to pay an interest fee to hold your check for another pay period, or the lender will deposit your check and immediately issue you another loan. If you pay the interest fee and allow the loan to “rollover” for one pay period, your fees on that same $400 loan increase to between $120 and $240.

This is how people get trapped in a revolving door of renewing payday loans. Unable to repay as quickly as the terms state, they wind up rolling the loan over or signing on for a new loan every two weeks. In effect, they’re re-borrowing the same money over and over, but the interest fees are stacking up on top of each other. Once they finally get free, many people have paid more in interest fees than the amount they actually borrowed.

What’s The Worse That Can Happen?

What's The Worse That Can Happen?

Defaulting on a payday loan is a little more serious than defaulting on a personal loan or credit card. This is because you haven’t just defaulted; you’ve written a bad check. The lender can take you to court per your state’s bad check laws, subjecting you to additional penalties.

Are They Ever Good?

Just because payday loans are risky doesn’t mean they can never help you. Keep the amount you borrow as low as possible, make absolutely sure you can repay the amount in full with your next paycheck and only borrow when it’s utterly necessary. If you wouldn’t normally spend your paycheck on it, don’t borrow money for it.

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