Article Series: Payday Loans & Cash Advances
Do I Need The Money That Badly?


What Are Payday Loans?

Payday loans are considered short-term loans that you can use to support you during rough monetary times. But first, you need to know more about payday loans before you jump in. Using payday loans, you must understand the attached costs and consequences to avoid losing your shirt. In this article, I'll give you a quick overview on how payday loans work. Additional facts and information about the correct usage and safe business deals will also be tackled.

Definition of Payday Loans

Payday loans are loans that are acquired if a person is in dire need of a relatively small amount of money. Payday loans basically help you through times when you're temporarily out of cash. The time frame a payday loan lasts is usually no less then two weeks.

In order to get a payday loan, you typically write a check stating the amount to be borrowed which also, of course, includes a fee. You then leave the check with the lender.

What happens if you can't repay the payday loan on schedule? Well, you can keep it rolling and have the loan extended. You don't have to repay it all at once, although you may find it a shock as your fees keep on accumulating.

Payday Loans Costs

Generally, payday loans are quite expensive (to the point of ludicrous). People who go into this pay an annual percentage rate or APR that amounts to an overwhelming percentage. Example, if you borrowed $200 to be paid back in two weeks, you can pay a fee of $40. And if you can't pay the borrowed amount and the fee on time, you may find it very disturbing to pay more on an increasing scale. This kind of percentage rate can be quite alarming especially for those who can only pay so much.

Pitfalls of Payday Loans

Obviously, one of the main pitfalls of payday loans is that the company doesn't really help you solve your problem regarding your financial problem. They only make the problem at hand even worse because of the high percentage they are imposing on you. Regardless of what your problem is, the loaning company doesn't really give a crap as long you pay the amount and fee assigned to it. That percentage fee/rate connected to the amount borrowed doesn't help you up, it just pulls you down.

In times of crisis, payday loans can be very helpful. People consider it even after every risk stated. Sometimes payday loans make sense especially if the person borrowing the money needs it desperately. This only applies to short-term payday loans. There is a total difference with long-term payday loans.

Trouble may arise if things are already out-of-hand. If the checks that you've written for loaning establishments bounce, you'll lose credibility. Result? Fewer banks will be thrilled to work with you in the future.

Payday Loan Alternatives

There are a lot of viable alternatives to payday loans. These are some:

  • Having your own emergency fund under your matress or in a savings account
  • Get a credit card for emergency purposes only (and don't use it until then)
  • Get a part time job (but this will take some time and will not be very useful when an on-the-spot emergency arises)
  • Consider family & friends for a more honest deal (but you better be able to pay them back! Don't screw that up.)

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