Beware of Payday Loans!

Every once in a while, we all get into a financial bind, sometimes due to no fault of our own. Things such as emergency out of town trips, car repair, past due bills and children’s expenses may hit you and come unexpectedly. Many may think “what can I do to resolve this problem?” The majority would say “why not take out a pay day loan and THIS will solve my short term problem.” This is NOT always the best choice.

WHAT IS A PAYDAY LOAN?

In a manner of words, a payday loan is a short term loan that uses your paycheck as collateral for repayment. These are normally drafted anywhere over a four to ten week status. They are used to solve short term problems and emergencies.

HOW TO OBTAIN A PAYDAY LOAN

There are a variety of ways to receive a payday loan. There are many internet payday loan services where approval is virtually instant with no income or employment verification. Many banking centers offer payday loans to their banking customers while most people can walk into a cash advance store and take out a payday loan. There is no credit check required, all you need is a valid driver’s license or state identification card, a copy of your banking statement to show where funds are deposited and copies of your two most recent pay stubs.

FINANCING CHARGES

This is where things get tricky. I once took out a payday loan for $250.00 over the internet for Cash Today. I was charged $175.00 in finance charges and a $99.00 processing fee making my total loan $524.00 to repay over 7 weeks making my weekly payment $74.86. Therefore I was essential pay 109.70% more than the principal charge. So therefore, I was payment the loan, 100% in interest and then a processing fee. That was absolutely ridiculous.

WHY PAYDAY LOANS ARE NOT A GOOD IDEA

If you are like me (living on a fixed budget), then a payday loan is not for you. From my own personal experience, paying back more than what I borrow was just not within my budget means and therefore I fell short of my bills that month.

For some, payday loans are addictive. Because you are paying back more than what you owe, you tend to need ANOTHER payday loan to pay back the first and meet your bills for that pay cycle. I had a friend that was once caught in the payday loan cycle and it seemed like the only time she was able to break herself out was a year later when she received her income tax return. By then, her income tax return was gone and she was in the same position she started out in before she started the payday loan cycle.

WHAT SHOULD I DO IF PAYDAY LOANS ARE NOT AN OPTION FOR ME?

That is a particularly hard question and it is up for you to decide. I have been through the embarrassment of asking friends and family members for short terms loans and to borrow money to help me with my bills but in the long run, at least I know that my family and friends are not going to report to a credit reporting agency or send me to collections if I default on the loan. You should never be embarrassed to ask a friend or family member for help when it comes to getting the support you need.

If friends and family members are just not an option, you should talk to a debt counselor first before making the decision to take out any loan whether it be a payday loan, short term loan, or personal loan from a bank, payday advance company or any other type of credit company. Debt counselors are there to assist you in negotiating all of your unsecured debt and can roll all of your bills into one low, affordable monthly payment that is easy to pay off. That way, you will have more cash in your pocket at payday.

If you absolutely must take out a payday loan, my only advice that I can give you is use it responsibly. The charges are high and the risk that you take is getting caught in the payday cycle, affecting your credit and affecting your future opportunities to take out further loans.