Payday Loans Why They Are Bad And How To Make The Best Of Them

Payday Loans Why They Are Bad And How To Make The Best Of Them



Payday loans: Why they are bad and how to​ make the​ best of​ them
Almost everywhere you​ look these days you​ can find advertisements for payday loans .​
And like other financial products,​ you​ can usually conclude that the​ more a​ product is​ advertised,​ the​ higher the​ profit margins it​ provides for the​ seller .​

Pay Day loans come under the​ guise of​ a​ variety of​ titles including; cash advance loans,​ check advance loans,​ quick cash loans,​ post-dated check loans,​ and deferred deposit check loans .​
But no matter what they call it,​ the​ product is​ always essentially the​ same .​

What are Payday Loans
Payday loans are small quantity,​ short-term,​ high interest loans .​
the​ way they typically work is​ that the​ borrower writes a​ personal check payable to​ the​ lender for the​ amount they desire to​ borrow plus the​ loan fee .​
the​ lending company then gives the​ borrower the​ amount of​ the​ check minus the​ loan fee in​ cash .​
So for example,​ if​ you​ wanted to​ borrow $100 for two weeks you​ might write a​ check for $115 and receive the​ $100 in​ cash .​

They are targeted towards those individuals who need a​ small amount of​ cash for a​ short period of​ time .​
in​ theory they might be helpful for a​ family who,​ for example had an​ unexpected expense arise this month that they had to​ pay for right away .​
This left the​ family short on​ funds to​ keep up with their regular obligations like rent and food .​
This is​ the​ rationale behind the​ loans and it​ is​ the​ opportunity for individuals to​ get access to​ quick cash without the​ need for extensive credit checks that make the​ loan,​ on​ face value,​ seem worthwhile.
Why They Are Bad
The problem is​ in​ the​ details .​
Returning to​ the​ example of​ the​ person who borrowed $100,​ let us now imagine that the​ two weeks are up .​
And at​ the​ end of​ the​ term of​ the​ loan,​ the​ borrower must either redeem the​ check by paying the​ lender the​ $115 in​ cash or​ roll over the​ loan for another two weeks .​
This adds another $15 dollars to​ the​ payment meaning that come two weeks later $130 is​ owed .​
For those unfamiliar with the​ lending industry,​ this may not seem like a​ bad deal .​
After all,​ the​ lender is​ taking quite a​ bit of​ risk,​ seeing as​ he hasn’t even checked your credit,​ right?
Well,​ not exactly .​
the​ most insidious part of​ Payday loans is​ the​ amount of​ interest they bear .​
a​ yearly home mortgage may be in​ the​ vicinity of​ 8%,​ while a​ Credit Card,​ which by most accounts verges on​ usury,​ charges in​ the​ vicinity of​ 30 – 40% in​ interest annually .​
But comparing that to​ a​ Payday loan,​ which has an​ annual interest rate of​ 400 – 700%,​ is​ startling.
A Payday loan is​ one of​ the​ most expensive legal lines of​ credit that a​ person can procure .​
on​ top of​ that,​ unlike a​ regular loan where if​ you​ default you​ can be hassled for late payments,​ a​ Pay Day loan company can by contrast simply deposit the​ check .​
When it​ bounces you​ will have committed a​ prosecutable crime that the​ Payday Company can use as​ leverage to​ get you​ to​ pay at​ any cost .​
in​ effect,​ they can threaten you,​ almost immediately,​ with criminal proceedings in​ a​ way that regular creditors cannot.
So why do Payday loans exist .​
the​ cynic would simply say that they exist because the​ lending industry is​ a​ powerful lobby that lines the​ campaigns of​ many politicians .​
And while that is​ certainly true in​ part,​ it​ is​ also important to​ consider that despite their shortcomings,​ Payday loans may fill a​ useful niche for a​ very small portion of​ the​ population.
Making the​ Best of​ Payday Loans
Those individuals who cannot attain credit cards,​ have no friends or​ family to​ loan then money,​ and cannot procure an​ advance from their employer,​ often have nowhere to​ turn for a​ bit of​ extra cash to​ fill a​ very short term need .​
Under these circumstances,​ and only under these circumstances,​ can one find an​ acceptable use for Payday loans .​
in​ these types of​ situations,​ it​ is​ important for borrowers to​ carefully examine the​ conditions of​ the​ loan .​
For while it​ is​ essential that borrowers avoid the​ rollover-trap the​ reality is​ that some will not .​
And if​ you​ fall into that unfortunate few,​ it​ is​ important that you​ know the​ contract you​ have signed.
Of particular note in​ the​ contract is:
-What recourse the​ lender will take if​ you​ fail to​ pay on​ time
-What the​ APR of​ the​ loan you​ are taking is
-What the​ rollover policy of​ the​ lending agency is​ and,​
-What their history with pursuing criminal actions against those that default is
While knowing these things and comparing them with their competitors will not convert the​ decision to​ take a​ Payday loan into a​ pleasant one,​ it​ will help limit the​ damage of​ those loans and hopefully eliminate the​ possibility of​ you​ slipping into the​ rollover-trap that captures so many Payday Loan users.




You Might Also Like:




No comments:

Blog Archive

Powered by Blogger.