For many American’s, being cash-strapped is a frequent problem. Bills pile up, cars break down and other unexpected emergencies take place. Individuals who fall into tough economical times sometimes turn to payday loans, which are readily available to the everyday consumer. Obtaining one is easy, but if you’re not careful, you could end up in far worst debt than you’re already in. With careful money management, a payday loan could be a great option for you.
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What is a Payday Loan?
Simply put, payday loans are just as they sound. They’re loans that are given to consumers until they’re next payday. The lender will only lend you up to the amount of your regular paychecks, so that you won’t end up unable to pay for your loan. In a sense, you can look at it as an early paycheck, which can come in handy when you are past due on utility bills or need gas to get back and forth to work. A payday loan is a short-term loan that has to be paid back within two weeks.
Why People Use Payday Loans
Consumers throughout the U.S. use this service for many reasons. As mentioned, when bills become overdue or extra cash is needed for an emergency, a payday loan can be taken out. It’s quite common for people to get a payday loan during the holiday season when extra money is needed during sales like Black Friday and the After Christmas Sale.
How a Payday Loan Works
In order to receive a payday loan, you have to be employed and have proof of verifiable income (such as paystubs, bank account statements, etc). You’ll also need to have an active checking account. It’s required by lenders for you to write a post-dated check (two weeks from then or after you get paid) for the amount of the loan, plus interest. The rate for payday loans vary upon the lender you go to, but is usually around $10 to $20 per $100 you borrow. Once the two weeks is up, you can either bring in the cash owed and pick up your post-dated check or allow the lender to cash that check.
The Pros About Payday Loans
There are a couple of reasons why a payday loan is considered a good option. Here is a list:
- It allows you to get money when you’re strapped for cash.
- The loan process is fast and once you’ve done it once and have your details on file, the process is even quicker.
- You can get a hold of money for emergencies.
- Some lenders direct deposit the cash to your bank account (Internet payday loan lenders).
- Getting a loan is based on your employment status, not credit history.
- Some lenders allow you to rollover your debt if you can’t afford to repay it within the set timeframe (however, fees will accumulate).
The Cons About Payday Loans
It may seem great to get a payday loan, but as mentioned, if you’re not careful, you could end up further in debt. There are a couple of pitfalls when it comes to payday loans and they’re as follows:
- They don’t help you to get rid of debt, but accumulates more.
- If you don’t repay the loan on time, you will have accumulating interest.
- Some people have to rely on payday loans to keep up with bill payments (i.e. you get a payday loan that’s the same amount as your checks. You use up all the money and when you get your check, it’s going to the payday loan company, leaving you broke until next payday, unless you get another payday loan.)
Tips for Using a Payday Loan
To ensure that you don’t end up relying on payday loans, it’s important that you become a better money manager. A payday loan is ideal to use a couple of times, but if used for long periods of time, it can become an issue that’s hard to get out of. It’s important that you only take out as much as you’re able to pay back. So if you know your next check is going to be smaller, then don’t get a larger loan. Having a check bounce will only cause your credit score to drop, making it more difficult to get any type of loan or credit in the future. Some institutions share information with other payday loan lenders, so if you default on a loan at one place, you may not be able to get a loan at another.