What are payday loans?

Payday Loan StoresPayday loans are small, short-term loans that are designed to get the borrower to the next payday. Many people use payday loans to get cash in an emergency, though a significant proportion of borrowers use them on a regular basis. Payday loans do not require a credit check, and because of this, they are often popular with recent immigrants and people with damaged credit histories.

When you take out a payday loan, you write out a post-dated check for the amount that you want to borrow, plus the lender’s fee. At the end of the term of the loan, you can either repay it (and the fee) in cash or allow the lender to deposit your check. If you still do not have the money to repay the debt, you can write another post-dated check, adding yet another fee. Thus, the cycle continues.

What are the benefits of payday loans?

A payday loan is an easy way to get emergency cash quickly. If your car breaks down and you have to get to work, you can get a payday loan to pay for the repair. For some people, a payday loan is the only form of credit that is available to them. If you have a very low credit score or no credit history at all, it’s unlikely that you will get approved for a traditional bank loan. A payday loan may be the only option.

Video: Why Get a Payday Loan?

What are the drawbacks of payday loans?

The biggest drawback with payday loans is that they are extremely expensive. The interest rate on a pay day loan can range from 400% to as high as 5,000%. In comparison, the APR on a standard bank loan is around 7%, and on a credit card, 12%.

Banks and other legitimate lenders are regulated by the government. Payday loans are not. Because of this, they can charge extortionate interest rates from the people who can least afford them. Some states do have usury laws which limit the interest that can be charged on a loan. However, some payday lenders get around the law by partnering with banks that are registered in states that don’t have that law. Some also avoid regulation by operating entirely on the internet.

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Should I take out a payday loan

If you desperately need money then and there, and have no other option, then you should consider payday loans. It may be worth it to pay the high interest rate if the alternative is even worse.

However, most people do have other options, even if they are not aware of them. There are many other places where you can borrow money at a lower cost. If you have a credit card, you can take a cash advance on it. Some bank accounts also have overdraft facilities. Try to borrow the money from a friend of a relative, or even your boss. Your boss will know when you get paid and may agree to give you an advance on your pay. If you have tried all other options, then look for a trustworthy payday lender.

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