Payday Loans

PayDay loan offers are popping up everywhere on the web. During this time of recession, it seems everyone is looking for a bridge between paychecks. Bills may have gone unpaid and absolutely must be paid by a certain date that lies between a paycheck that is paid every two weeks or once per month.

Payday loans are typically small loans of about $500 to $1500. These type of loans do not require a credit check, however they must be paid back quickly and most often within by the next paycheck or two. Some refer to payday loans as a payroll advance, in which you are getting your paycheck early and when you do finally get your actually check, you use that to pay back the loan. Typically a pre-dated check or debit card authorization is required before the loan is given.

There is a fee for payday loans and additional finance charges for late payments. Anyone can get a payday loan as long as they have an active checking account and proof of a steady income via a paystub.

These types of loans are great for emergency money for things that come up unexpectedly such as your car breaking down, the toilet backing up, the dog getting sick, etc. For those who are budgeted down to the penny and live pay check to pay check, these issues can cause financial problems. If waiting on a paycheck and money is needed for these types of things right away, the choices are to either borrow from family or a friend, which sometimes is not an option or not a good idea. Payday loans allow people to "borrow" the money from themselves.

It is imperative that payday loans are paid back on the due date. Some people can get into trouble if they don’t plan ahead and realize that they need to use their next paycheck to pay the loan back. It is advised not to use a payday loan to frugal items if you know that your next paycheck is already accounted for with bills that are scheduled to be paid. People can end up in a bad hole if they use payday loans irresponsibly.

The annual percentage rate (APR) on payday loans is typically 400%. This must be taken into consideration before using a payday loan. While they are great in an emergency situation, they can get costly if use too often or abused.

What are the negatives? It is crucial that you repay a payday loan as soon as possible. Many people get into trouble with these types of loans when they are unable to quickly repay the debt. If you can’t repay the loan at the end of the term, you’ll be charged expensive additional fees. It is very costly to be stuck in a payday loan cycle for a long time and can lead to larger financial problems. Payday loans are also much more expensive than other methods of borrowing money. In most cases the annual percentage rate (APR) on a payday loan averages about 400%, but the APR is often as high as 5,000%. A standard credit card has an APR of 12% and a standard loan APR is around 7%. If possible, it is better to use a credit card or tap into your savings in the event of an emergency.

Ask yourself if it really is an emergency. Payday loans can be helpful for one-time emergency costs such as medical fees but are not a good idea for funding unnecessary expenses. Is it possible to wait to repair your car or pay your bills until your next paycheck? Remember, a $25 late fee on a bill is cheaper than a $40+ finance charge for a payday loan. Think about other ways to borrow money:

Cash Converters
Converting loan to cash