You’ve probably seen payday loans advertised on television or billboards. High dollar amounts instantly for just a small fee sounds tempting, but you need to know both the advantages and disadvantages to these loan types. Unlike a traditional bank loan, payday loans aren’t based on a credit score, instead simply charging you a set fee for the duration of the loan. Take a look at all aspects of payday loans before signing on the dotted line.
Short-Term Benefits
In a perfect world, you would have ample funds for all kinds of financial emergencies. However, a payday loan may be necessary and advantageous in some cases. For example, consider the scenario where you need $100 to pay for a car repair. Your paycheck arrives in seven days, allowing you to repay the loan. The company charges you a $15 fee for this service. You write a check for $115 and they provide $100 cash today. When your paycheck arrives, the payday loan company simply cashes your $115 to complete the transaction. In this scenario, payday loans are helpful and cost a small amount to get you through a tough spot.
Long-Term Risks
Risks begin to grow when you don’t pay the loan back within a week or even a month. Rolling over the loan forces the lender to charge another $15 to cover the extended time. Each term period costs another $15, slowly adding up over several months. Payday loans aren’t good deals if you need a long-term loan. If you can’t pay back payday loans within a few weeks or a month, consider a personal loan from a bank. Their interest charges will be much lower than those of payday loan providers.
Payday Loan Availability
Each state has its own laws regarding payday loan providers. States that allow the businesses may stipulate minimum and maximum loan amounts, along with potential interest rates. With state laws, the loan provider can’t take advantage of consumers. Other states may have laws that are just too stringent for providers, forcing them to move to other states for lucrative business. A few states do ban payday loan businesses, but it’s possible to look online for other options. When used correctly, a payday loan can be a helpful tool.
The Fine Print
Payday loan providers must offer payment and interest terms upfront for all consumers. Laws protect people from accidentally agreeing to high interest rates. Before you sign any agreement, read all the fine print. Although this may take some time, you want to know if there are any interest changes over time or penalty fees.
If you pay the loan back promptly, there are usually no problems with accumulated interest. However, you want to be ready for any setbacks to protect your financial interests. A provider that doesn’t disclose interest terms should be refused immediately. There are potential scam artists in the world of payday loans.
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