Payday loans are a popular option for those who need access to quick cash. They are easy to access, with many lenders promising access to cash within 24 hours and an immediate loan decision. Some are even available 24 hours a day, 7 days a week and have online requests. But while payday loans can provide much-needed emergency cash, there are dangers you need to be aware of. The number one advantage of payday loans is that they are easy to access.
Lenders hardly ever check credit history, which makes their loans easy to obtain, but interest rates are extremely high and customers are among the least intelligent borrowers in the country. Payday loans are advertised as short-term emergency relief, but most people apply for loans to cover routine living expenses, such as car payments, mortgages, credit card payments, utilities, food and rent. Payday lenders offer cash advance loans, check advance loans, postdated check loans or differ deposit loans. You don't have to give the lender any collateral or borrow an item of value like you do in a pawn shop. Payday lenders must disclose the financial charge and annual interest percentage rate (APR) in writing before signing the loan. The new rules would force many lenders to close deals and reduce loan volume by about 85 percent, according to the American Community Financial Services Association, a trade group.
Payday loans are designed to catch you in a debt cycle. When an emergency happens and you have poor credit and you don't have savings, it may seem like you have no other choice. But choosing a payday loan negatively affects your credit, any savings you might have had, and may even cause you to take you to court. In the United States, payday loan operators often operate from shop windows in low-income neighborhoods. The goal is to spend bank loans on people whose credit makes it impossible to qualify for conventional loans or credit cards.
If you are unable to repay a payday loan, the account may be sent to a collection agency, which will chase you for the money and interest you owe. Payday lenders can apply for a bank account, but sometimes a prepaid card account may be enough to qualify. Another thing to keep in mind is that guarantor loans can be expensive, as they are likely to charge higher interest rates than other types of loans. Since lenders typically require a post-dated check before issuing the loan, the check will be deposited on the next payday. As such, payday loan companies “they usually organize their offices more like a fast-food restaurant than as a lender, with signs in the form of a menu setting rates and requirements. But the payday loan can be filed once it is passed to the collectors after the lender sells the debts. Compare the 15%-30% APR on credit cards or the 10%-25% rate for a personal loan from a bank or credit union and it's hard to understand why anyone would choose this path.
If you have been receiving certain benefits for six months or more, you may be eligible for a government budget loan to cover your essential household expenses. Payday loans can provide much-needed emergency cash but it's important to understand all of the risks involved before taking out one of these short-term loans. Be sure to compare all of your options before making any decisions so that you can make an informed decision that is best for your financial situation.
