The Pros And Cons Of Payday Loans

The Pros And Cons Of Payday Loans



The Pros and Cons of​ Payday Loans
These days payday loans have become extremely popular and in​ fact,​ it​ would seem that everywhere you​ turn there is​ an​ offer for a​ payday loan to​ get you​ the​ extra money you​ need until the​ next payday .​
Are payday loans really a​ good idea; however? Sure,​ they can help you​ out when you​ are in​ a​ tight spot financially but there are several serious factors that need to​ be considered before you​ actually take out such a​ loan .​
First,​ let’s take a​ look at​ how payday loans work .​
Usually the​ lender will agree to​ lend you​ a​ specified amount of​ money for a​ certain period of​ time .​
For example,​ let’s say you​ needed $200 to​ cover some unexpected expenses .​
You would borrow the​ $200 and write out a​ postdated check for two weeks hence to​ cover the​ amount of​ the​ loan plus the​ finance fee,​ which would be around $60 for this size loan .​
So,​ in​ two weeks the​ lender expects to​ be able to​ cash that check for $260 to​ recoup the​ loan extended to​ you​ .​
Before taking out the​ loan,​ it​ is​ extremely important to​ ask yourself whether you​ will really be able to​ afford to​ pay back the​ loan when it​ comes due .​
Most payday loans are made on​ a​ two week to​ four week basis .​
In the​ event that you​ can’t pay back the​ loan at​ the​ end of​ that timeframe most payday loan companies will be quite happy to​ extend the​ loan; however,​ if​ you​ do that you​ will be charged more interest .​
This brings up an​ interesting point because it​ can be difficult to​ determine how much interest you’re paying on​ a​ payday loan when it​ involves numerous extensions .​
The truth of​ the​ matter; however,​ is​ that depending on​ the​ number of​ extensions you​ take on​ the​ loan you​ may actually be paying 300% interest,​ at​ a​ minimum .​
No,​ that’s not a​ typo .​
How can they do that? Because there are no regulations regarding the​ amount of​ interest charged on​ payday loans when they are extended in​ this fashion .​
As you​ can well imagine,​ with this type of​ interest rate,​ you​ may never be able to​ pay back the​ loan .​
Depending on​ how long you​ continue to​ extend the​ loan,​ you​ may actually end up paying far more than that .​
Based on​ our earlier example,​ if​ you​ extended the​ loan three months after the​ original due date you​ would owe almost $500; more than double the​ amount you​ originally borrowed .​
There can also be other problems associated with taking out a​ payday loan,​ as​ well .​
For example,​ if​ you​ happen to​ unfortunately be working with a​ company that is​ less than scrupulous you​ may find yourself owing bounced check fees as​ well .​
This can be a​ real danger if​ the​ lender deposits your post-dated check prior to​ the​ agreed upon date or​ if​ you​ don’t have enough funds in​ your account to​ cover the​ check on​ the​ date you​ agreed upon .​
When all factors are taken into consideration,​ payday loans can be a​ dangerous risk and should only be considered if​ you​ truly have no other alternatives,​ such as​ taking out a​ small loan from your bank or​ credit union,​ borrowing from family or​ friends or​ simply making arrangements with your debtor to​ wait until you​ receive your next paycheck.




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