Payday loan stores are popping up on every corner in every city, which must mean they get a lot of business, but should they get your business? Well, people often use payday loans to get them through a financial hardship, but in reality, payday loans could actually cause a financial hardship. It’s a double-edged sword when you really look at it.
Payday loans are short-term loans you can get when you’re in need of some extra money. You can borrow the money you need, usually a few hundred at a time, for a short-term period, which is usually two weeks. When you go to apply for the payday loan, you usually hand over a post-dated check to the lender for the amount of the loan plus a fee. In other cases, the lender will take down your bank account info and set up an automatic withdrawal on a specific date that you agree to repay the loan.
If you are unable to repay the loan on the date it is due, you do have the option of extending the loan by rolling it over. This will allow you more time to repay the loan, but you will also be charged additional fees. Payday loans usually do not require credit checks, so they are pretty easy to get as long as you have an income and a checking account. Payday loans don’t sound so bad when you first think about them, but they can get you into financial trouble really fast.
Payday loans aren’t cheap. The fees are outrageous and the interest charges are astronomical. The interest rates are where you really get into trouble because you could end up paying an annual percentage rate (APR) of anywhere from 100% to 1000%. This explains why there are so many payday loan places popping up everywhere. They make a killing off the interest their customers pay.
If you are in an absolute bind and you need some money to get you through until your next payday, like if your car breaks down and you need money to repair it, then a payday loan can get you the money you need when you need it. If you pay it back in full on or before the due date, then there’s no problem and you don’t get yourself in over your head. It’s when you either can’t repay the loan back on time, or you just don’t pay the loan back on time, that you can get yourself into a huge financial mess that is very hard to recover from.
In addition to the fees and interest rates getting you into trouble, there’s also the possibility that you could wind up bouncing checks and incurring fees from your bank as well. For instance, you give the payday loan place a check that they attempt to cash after your repayment due date arrives, but you don’t have the money in the bank. That check will bounce and you will incur bank fees, such as returned check fees and insufficient funds fees or you may even have an overdraft charge if your bank allows you to overdraft, and these fees can get you into even more financial trouble.
So, before you decide to stop into that payday loan store down the street, you should weigh your options carefully and make sure getting a short-term payday loan is something you really want to do. Use it as your absolute last resort.