Payday loans, also called cash advance loans or check advance loans, have become quite popular nowadays. There are many agencies that offer these loans and the idea might seem quite tempting. But is it all that it is cut out to be?
Most people go through financial problems at some or the other time in their lives. It could be a medical emergency or repaying a loan that we don’t have ready cash for. Our credit ratings might not be too great and we might have already borrowed money from family and friends. This is where Payday loans are helpful. These are loans that are given on the premise that you pay them back on your next payday. You could write out a post-dated check to the loan agency or give them your bank account number so that they could take the money out of your account, electronically, when your salary comes in.
The requirements needed for a Payday loan are simple. You need to be 18 years or older. You should be employed with a steady source of income and you need to have some identification, for example, a social security number or a driver’s license. You must also have a bank account. These loans do not require a credit check or collateral. Depending on your income, you could get a loan that varies from $100 to $1500.
Sounds good so far? There are certain disadvantages as well. The interest rates for Payday loans are very high. You could easily have to pay $15 for every $100 that you borrow. If you cannot repay the loan on time, you do get an extension, but the interest rate increases as well. Many people end up paying double the amount they borrowed, due to late payment. If your check bounces a couple of times, you could be stuck with a negative credit rating. This means that the next time you apply for a loan, you would be charged higher rates of interest. You could also lose your bank account and face difficulty opening a new account.
You can avoid having to take these loans by learning how to manage your money better. Start an emergency fund that you can use when times get hard. Keep the option of Payday loans as a last resort.
