Payday loans are short-term loans that provide immediate funds which are repaid on your next pay day. These loans can be as small as $100 – $500, while some can be as much as $1,000 or even more. Payday loans are relatively easy to qualify for and all you need to do is provide some basic information regarding your income, bank account and more. There is typically no credit check conducted, making it an ideal way for individuals with bad or no credit to be approved. However, before you head out and apply for a payday loan, there are some things that you should be aware of regarding these types of loans. Here is an overview of the good, the bad and the ugly regarding payday loans:
The Good
Payday loans can be a great way to bridge the gap between paydays if used as an absolute last resort. For instance, if your car needs immediate repairs and you need to borrow quick cash until your next payday, a payday loan could be very helpful. Another positive aspect about payday loans is the fact that they’re funded rapidly, often the same day. This is often faster than traditional loans and can be important when you need fast cash for groceries, gas or anything else. The payday company will often give you cash, which is preferred by many customers, or they can deposit the funds directly into your checking account.
Additionally, payday loans usually come with flexible terms. For instance, if you don’t have the money on the date your loan is due, the company will likely work out alternate arrangements with you. This is, of course, dependent on whether you contact them before they automatically deduct the payment from your account.
The Bad
Many payday loan providers will give borrowers the option to simply pay the fee to extend the loan until the following payday. These fees can add up fast, and the high interest rates can cause you to end up paying double or even triple the amount that you borrow. Interest rates can be as high as 400 %, with fees as much as $30 for every $100 you borrow. Therefore, if you do decide to borrow money via a payday loan, paying it back as soon as possible is important. Why pay back $1,500 if you’re only borrowing $500? That can easily happen if a loan is extended multiple times and fees and interest continue to accumulate.
Another negative aspect of payday loans is the fact that they require access to your bank account. Some of them even require payments to be automatically deducted from your account, which could cause issues with overdrafts and more. There have even been instances when payday institutions have deducted higher payments than the consumer expected. This could occur due to incurred late fees that you may not be aware of, or some type of error.
The Ugly
Unfortunately, not all payday loan companies are legitimate. There are numerous companies that appear legitimate but they’re just out to steal your money and personal information. Predatory payday loan companies are usually online, which helps them to avoid detection. These predatory payday loan companies will happily approve your loan application and fund the loan immediately. You will often see money in your bank account within hours. However, when the loan is due, they will often withdraw money from your account that you didn’t agree to, money that exceeds the amount of the loan payment. Such a loan can cause you to experience greater financial disaster than you experienced when you first sought out a loan in the first place. So, if you opt to apply for an online payday loan, make sure you know exactly who you’re dealing with and what their reputation is before you provide any of your personal information. Also, make sure you read and understand all the small print before signing anything.
As long as you deal with a reputable company, obtaining a payday loan can be a real lifesaver when you need money fast and payday is another week or so away. If you do your homework ahead of time and find out all the pertinent information about the company that you’re dealing with in advance, your experience should go smoothly. However, be sure that you only have one open payday loan at any given time, because many consumers have found themselves on the verge of bankruptcy after opening multiple payday loans simultaneously. Payday loans are meant to be short-term loans that are paid back immediately. If you find that your finances are getting out of control due to one or more payday loan, you may need to seek credit counseling.