The Costs and Risks of Getting a Payday Loan

by Stephanie Moore

Just what are Payday Loans?

Payday loans are small, short term loans you can get when you are short of of money. Most often the terms of a payday loan are two weeks or so. When you are approved for a payday loan, most lenders require that you write a check, left with them as collateral for the entire amount you are borrowing – plus their fee. They will then cash it in once you have the money available for them in your checking account. Now if you are unable to repay your payday loan by the time it becomes due, most lenders are happy to let it ‘roll over’, meaning that the payment of your your loan amount is extended. BUT, your fees – the interest rate – keeps accumulating.

Payday Loan Costs

Typically the initial repayment is around 20% or less. Meaning if you borrow $200, you pay back $240. That’s really not an outrageous fee, especially when you need money in a pinch. But if you do not make the payments at the mutually agreed upon time, the small print takes effect and payday loans can then become pretty expensive.

The Pitfalls of Payday Loans

The chief difficulty in dealings with payday loan businesses really lies in your hands. If you are unable to fulfill your financial obligations to them your money troubles may become even more distressful. You will end up paying a high rate of interest on your loan. So the more time it takes you to pay back the loan, the more you will end up paying needless fees. But in the short-term perspective, a quick payday loan can prove to be very helpful. For example, you may have an auto breakdown and need some emergency cash to pay for car repairs so that you are able to continue going to work and bringing home an income. But if after borrowing money you still find yourself financially extended, communicate with your payday loan company and let them know what is gong on. Because you could find yourself in even deeper money troubles if you bounce any cheques that you have written to the payday lenders. And just about all banks attach heavy fees which will also end up being combined with even more fees from the payday loan company. You will then end up being registered in their high-risk customer files and other banks may not even allow you to open to up a checking or savings account.

A Rebuttal from Payday Lending Companies

The payday loan companies say that payday loans are the quickest and easiest way for some people to get the money they need right away. And, that their fees can be less expensive than if you end up bouncing checks to your bank and business merchants.

In the end its best not to make payday loans a long term financial strategy. Don’t feel embarrassed if you find yourself stretched thin for cash, but if you need to borrow money, know what your getting yourself into and proceed with caution. In fact, if you really need to borrow money its probably better to borrow money from a payday loan company then from your friends because if you should become really late with your payments you could lose a valuable friendship. In any case, borrow responsibly. You never know when you may need another payday loan.

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