A lot of times, payday is the best day of the week or month because you feel as though you have enough money to go eat at your favorite restaurant or simply have a sense of security. However, there are some people for whom payday is just a fleeting moment when money goes into their checking account to be used for repaying numerous bills. This is especially true if you have taken out a payday loan because these loans do not lend any security to the large amount of money that you momentarily have in your checking account.
You may be wondering exactly what a payday loan is. Well, it is a short-term, small amount of money (between $100 and $1000) that is secured until your next payday. Usually these loans are secured with a post dated check or electronic agreement for debit from your bank account that will take place upon your next payday. These loans are usually easy to obtain as long as you have a steady job and a checking account since there is no credit check.
Payday loans are meant to be used for emergency purposes that occur between the times when your paychecks arrive. These emergencies can include such things as unforeseen medical bills or for avoiding late fees on other payments or overdraft fees in your checking account. However, these loans should only be considered after all of your other options, such as asking to borrow money from your friends or family, have already been exhausted.
Whenever you secure a payday loan you may feel as though their interest rate is small. However, if you read the fine print or compound the interest to an annual percentage rate (APR), you will see that some interest rates will range from 300% to 500%. As you look at the big picture of things, you will see that this is actually an astronomical amount. This can become especially noticeable whenever you look at the normal loan rates for personal loans, which tend to hold steady at around 10%. Of course, these loans are not as easy to secure, especially if you have poor credit. So, whenever you are borrowing $200 from a payday loan and have to pay back $220 in 2 weeks, the fees may seem small. However, when you take the time to figure out the APR you will see that you really are looking at a much higher percentage than if you had borrowed the money from a family member or bank.
If you have borrowed money and cannot repay the payday loan when it is due, then the loan can be rolled over for another pay period. Of course, this will more than likely result in several more fees that you must pay immediately. You will find that these fees could range from the amount of the original loan to more than twice the loan’s original fee.
As you can see, it can be dangerous to take out a payday loan. You also need to realize that some lenders are actually predators who are stalking vulnerable people in order to get their hands on these people’s personal and banking information. This is why it is so important to check the background of any payday lender that you are interested in borrowing money from. After all, you want to make sure that they are a reputable company. This research can be done online, via the company’s corporate office and through your own personal contacts. It is something that you need to do before you submit an application for a payday loan.
While payday loans can be real lifesavers, they can also easily lead to your financial ruin.