Payday loans are basically short term loans which can be very useful during a financial emergency. The term was coined because the loan is tied up with the borrower’s source of income. This type of loan may appear to be very convenient for some people who are strapped for cash but acquiring this kind of loan can sometimes be tricky and stressful. Therefore, it is important for borrowers to do their research first so they will not end up in a lot of debt.
Payday loans are called short term loans since the borrower has to pay the loan amount within 2 weeks or so. The loan amount is usually modest since lenders do not typically release large sums of money for this kind of loan. The borrower must first issue a check for the loan amount plus fees. If the borrower is not able to pay the loan amount on the agreed schedule, then they can ask the lender for a roll over so that the loan will be extended. This is probably one of the worst things that can happen to a borrower because the fees will keep on building up. Fortunately, some states have already limited or regulated the number of roll overs for the borrowers.
Are payday loans worth the risks?
Payday loans may save your life especially during desperate times; but in reality, this type of loan can be ridiculously expensive. Borrowers must pay an APR or annual percentage rate that could be a lot bigger considering that the loan period usually lasts for 2 weeks or so. Another major pitfall of a payday loan is the cost that it entails. The fees on top of the loan amount are usually high plus interest rates.
However, payday loans can still work for anyone as a short time solution. As a borrower, you just have to always keep in mind the due date of the loan and it will also help if you deal only with legitimate and trusted lenders.
Payday loans are mostly offered by private lenders but because of its popularity; banks are now offering this kind of loan provided that the borrower will be able to comply with the requirements. Loaning from a bank is a better alternative from traditional bank loans. However, the process and pitfalls of a payday loan from a bank is basically the same as from a private lender or financial institution.
Now despite issues, if you still think that getting a payday loan will solve your problems, then here are a few things that you need to carefully consider:
- Do your own research online or by asking referrals from your friends or colleagues. Ensure that you take the time to read about lenders and what they have to offer.
- Always read the fine print. Better yet, look for a lender that offers deducted fees or even minimal interest rates.
- Be mindful of your due date. Make sure that there is enough money on your checking account so that the payment will be processed.