Credit is a funny topic, sometimes we have too much available to us when we don’t need it, and other times we simply don’t have enough when we actually need the credit. There are many forms of credit available to us such as lines-of-credit, credit-card cash advance, personal loans, payday loans, and traditional secured lines of credit are just some examples of credit access available for us to apply for. Because we all don’t share the same credit scores or else the lenders would be out of business pretty quickly, our credit scores determine the type of loan we can access, and the rate we get with it.
In the wake of the financial crisis of 2008, lending rules changed, and the big lenders are turning down traditional loans that they might otherwise have granted because of changed regulatory practices and the current economic climate. It’s no secret that borrowers are looking for alternative ways to borrow money.
Enter a payday loan advance. While technically not a traditional loan, it is rather a cash advance is a lump sum (usually less than $3,000) given to a borrower in good faith that the loan will be paid back within a certain time period (usually by the next payday). And thanks to quick approval and almost instant access to the cash, they’ve recently become a go-to, albeit risky, source for borrowers with sub-par credit for access to quick temporary cash.
Payday loans, which are mostly unregulated, drew attention in 2008 and 2009 when credit dried up with the big lenders. At the time, the number of providers exploded, and some borrowers complained of fly-by-night advance providers charging atrocious rates.
And while the industry has begun to set standards, the fine print and high interest on payday advances can still make payday loans not something for everybody. Here are 3 questions you should ask yourself to determine whether a payday loan is right for you.
1. Will you have enough to cover the interest?
Accessing payday loans online is pretty straightforward and a timeless process. The borrower should always be mindful that payday loan advances can be expensive, and that interest can add up with unanticipated speed. There is a repayment penalty, which is very similar to a credit-card repayment penalty, which is if the loans is not repaid by a given date, the borrower is faced with a fairly high interest rate.
Furthermore, the borrower is charged interest from the day the money was borrowed, so if it takes the borrower over thirty days to repay the loan from the day that money was accessed, they will pay a hefty interest rate (rates very from borrower to borrower) to face which is added on top of the money borrowed.
2. Have you done enough research?
If you are going to take a cash advance, do thorough research on the payday loan advance provider before signing anything. Make sure that the lender has a clear disclosure of their fees, and if you’re uncertain on anything, don’t be afraid to ask for further clarification or simply walk away.
In the past there have been companies that may have engaged in abusive practices, and as the industry continues to clean it self up, its up to the borrower to do their due diligence on who they’ll borrow the money from. Thankfully many payday loan companies over the years have gone out of business, mostly due to complaints from people were taken advantage of at some point. Cash advance providers often engage in aggressive marketing campaigns. Borrowers need to search out reliable lenders that will work with them, and not against them.
3. Will this be a one time deal for you?
Payday loan providers know that the borrowers will need more cash in the future, and are sometimes all too willing to extend a helping hand. It is very easy for a borrower to fall into the trap of continued borrowing from an payday loan institution when it may no longer be necessary.
Having a terrible credit rating means that a borrower will have fewer options of loans to choose from, but payday loans are one of the options available if an individual is willing to accept that they do come with higher interest rates vs. traditional loans.
Readers, do you know someone in your direct circle of family or friends who has resorted to a payday loan? What was their experience like?
Eddie
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Luckily I’ve never needed a payday loan. Well there were times when I might’ve been tempted if I had known about them. Instead I found other ways to get by. It just seems like way too much money to pay in interest unless you absolutely need it.
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I’ve had numerous clients that fall into the payday loan trap. Your 3rd point hits on it well…most of the people utilizing payday loans aren’t doing it for a one-time deal. I think there are better methods of borrowing money if you were only going to do it one time.
With that said I’d avoid payday loans at all costs. They’re an absolutely ripoff and they really do hurt the people that use them.
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I agree with you, people really need to think before they get a payday loan. It really is an emergency thing because of the high rates. A better strategy if you can swing it would be to get a secured credit card and build up your credit standing so you can get a higher credit limit and lower interest rates.
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If some one thinks that its a good idea to take a payday loan he or she should understand that this is a high interest loan because of the high risk to the lender.
So yes payday loans has high interests but also they are usually the last place that some people can get a loan from.
When feel you’re self in heavy weight of financial emergencies. Payday loans are the solution of your financial emergencies.
Totally true, Harvey. do not apply for one if the only thing you will do about it is for your material wanting or buying something that you want to showoff.
thanks for sharing this…
Actually, the first thing you need to remember when deciding to take a payday loan is that it is important to make an online research to analyze the offers different lenders make and choose the one with lower interests and flexible terms.
I think there is a time and a place for payday loans and as a real last resort they can definitely be of use, it just depends on your personal financial situation and making an educated choice based on that.
I think it all depends on your own personal situation, I hope I never need to use one however I think if things were really tricky I would take one out and make sure I paid it back in time.
When a borrower starts taking out one payday loan to payoff another is when the vicious cycle beings. It seems like if laws were made to where is the borrower couldn’t take out a X amount of payday loans with within a certain time-period, the product wouldn’t be looked at as so predatory any longer.
Payday loans are tricky and require a lot of careful planning. Most people just jump on them as a fast and easy solution and then end up in a lot of financial trouble with a debt spiral spinnon out of their control. It’s great that you’ve highlighted the most important aspects and questions you should ask yourself before you take a loan. Have you read this resource about the dangers of payday loans? http://onlineloan24.com/blog/how-payday-loans-online-might-cause-a-lot-of-problems/ It also outlines a lot of things one should be careful about with such loans and offers a few alternatives to avoid them altogether.