There are often times when you need money instantly, especially the times when the recession is high and is biting people’s pockets. In such difficult times borrowing money from someone can be stressful. There are varied choices for personal loans, and payday loans, also known as cash advance loans, are one option.
Payday loans sound tempting as you can get them easily. There are various payday loan companies that can lend you the loan. You can even get mobile payday loans by simply texting when you require cash. However, they can come with certain risks, and these loans are even illegal in some states. Before surfing the internet for payday loans near me online, you should understand the costs and benefits of payday loans. Here is an article with all you need to know about payday loans.
What is a Payday Loan?
A payday loan is a high-cost, short term loan that is designed to be paid back on the next payday. Most payday loans are for only a few hundred bucks that are needed to be repaid within a couple of weeks.
Payday loans are a type of short-term loan that people mostly use in rough times.
The structure and terms of payday loans differ by state, individual loan, and lender.
Payday loans are often touted as a method to handle unexpected expenses or to bridge the gap between paychecks; however, they are considered as debt traps.
How do Payday Loans work?
Payday loans are known by different names like deferred deposit loans, cash advance loans, or post-dated check loans, but they all typically work in the same manner.
In order to get a payday loan, you are required to write a post-dated check to the lender for the complete amount and additional fees. Or you need to authorize the lender to debit your bank account electronically. The lender then lends you cash.
Now the next question is, how are payday loans paid back? You need to repay the loan by your next payday; usually, you need to repay in two to four weeks. If you do not pay back the loan on the due date, then the lender can debit your account electronically or can cash your check.
A payday loan is illegal in many states; however, the states that allow payday loans set a cap on the amount of loan and accompanying fees. On the basis of states, payday loan companies can charge from $10 to $30 for lending every $100.
How many Payday Loans You can Have?
The number of payday loans completely depends on the lender. Many lenders might set restrictions on the total number of payday loans you can have at one time. The best way to know how many payday loans you can have at one time is to ask the lender.
What are the Problems Associated with Payday Loans?
Payday loans sound helpful and amazing as they can provide instant cash that you need; however, there are problems associated with payday loans that you should know.
Additional fees are one of the biggest drawbacks of payday loans. You if could not repay the loan within the determined time, then you would have to pay an extra fee in addition to the initial loan fee. This fee begins adding up if you re-borrow or roll the debt over. Below mentioned are some of the things that additional fees can include.
- Rollover Fees – It is charged in addition to the original loans and the initial fee in order to push back the due date of the loan.
- Non-Sufficient Funds Charge – If you do not have sufficient amounts in your bank account when the lender tries to electronically withdraw funds or cash your check, then you will have to pay the non-sufficient funds charge.
- Late Fees – You might have to pay late fees if you could not pay back the loan on time.
You can easily and quickly get a payday loan; however, you need to pay it back within two or four weeks.
Do Not Help in Building Credit
Borrowers having poor credit history might not have access to loans featuring better terms. However, the pay lender does not report the history of your payment to the credit bureaus, which clearly means that the loan does not help you to build credit.
What are the Alternatives to Payday Loans?
Payday loans might seem like a quick fix; however, there is a wide range of options available that can help you manage the cycle of your debt. Below mentioned are some of the best alternatives to payday loans.
In some states, your employers are allowed to advance your paycheck by adding no extra fees. It might be up to the discretion of your company, so in order to know about this option, you should ask your human resources or supervisor.
Credit Union Loans
You can get access to lower-interest personal loans if you are a member of a credit union. Federal credit unions might also provide members “payday alternative loans” for loans having amounts between $200 to $1,000. These loans might be provided with terms up to six months, APRS of around 28%, and an application fee of no more than $20.
Emergency Personal Loan
These loans might include high-interest rates; however, if you need a loan and you are not eligible for lower rates. You should do some comparison shopping. You might be eligible for better loan options with long terms and better rates.
A debt settlement might affect your credit; however, it can help you in resolving your debt.
In the long term, you can also work on handing and fixing the financial issues that often lead you to payday loans. You can opt for credit counseling that could help you in developing your budget.
Payday loans might worsen your issues as they have higher fees. You can choose alternatives to payday loans in order to solve your financial issues.