Payday Loan: Legalized Highway Robbery Or Real Financial Help?
Written by: Vishy Dadsetan
Need extra money to get you to the next paycheck? Payday loans
come to the rescue. However, you should be prepared to pay the
price which is usually a hefty one. But there are steps you can
take to minimize the financial damage.
What are Payday Loans?
Cash advance loans, post-dated check loans or deferred deposit
check loans are high-rate loans and are intended to be used for
short term. Emphasis here is on short term, usually 14 days
since most of us get paid bi-weekly.
How does a Payday Loan work?
The old economy created the idea of living paycheck to paycheck.
As if that wasn't bad enough. In today's economy many don't even
get to the next paycheck. So, the potential borrower writes a
personal check payable to the lender for the amount she wishes
to borrow plus a fee.
The lender cashes the check and keeps the fee, of course.
Ideally this type of loan will get the borrower room to breathe
and he/she can pay off the loan when he/she gets paid.
Lets take a look at an example. Ms. Susan Borrower needs $200
and the cost is $30. She writes a check for $230 and the payday
lender agrees to hold the check until her next payday that is
usually 14 days away.
After 14 days, depending on the particular plan, Ms. Borrower
takes $230.00 in cash to the lender and takes back the personal
check she wrote. Or, she can roll-over the check by paying a fee
to extend the loan for another two weeks. Each time she
rolls-over the check, she will pay a fee that in this example
was $30. In theory, if she rolls-over the check for one year,
she ends up paying $30 for 26 times or $780 for borrowing $200.
How is the payday loan fee calculated?
Usually lenders charge a fixed fee for per amount borrowed. For
example $10.00 for every $100.00 you borrow and it can be as
high as $30 for every $100.00 you borrow. Ouch and double ouch!
This translates to something like 700% annual rate of interest
and some people are worried about the 20% credit card interest
How can Truth in Lending Act help you?
Under the Truth in Lending Act, the lenders must disclose the
cost of payday loans. So look for them to compare. Among other
information, you must receive, in writing, the finance charge (a
dollar amount) and the annual percentage rate or APR (the cost
of credit on a yearly basis).
What type of collateral should you have?
Your personal check is the collateral. Reverting back to the old
days of my word is my bond. But since many people break their
words as easily as they would their bonds, lenders make these
loans very very expensive so that those who do pay will carry
the cost of collection from those who do not pay.
What alternatives do you have instead of payday loans?
Contact your credit union or small loan company, find out if
your company offer any short term assistance. I know it could be
hard to tell friends and family members about your financial
hardship but swallow your pride a little bit and ask them for
help. Just make sure that you don't swallow your pride too much
by not paying them on time.
If you are borrowing to pay other debts or other bills, why not
just ask your creditors for more time to pay your bills? Find
out what they will charge for that service including late
charges and additional finance charge or a higher interest rate.
What steps can you take to reduce the cost?
When you need credit, shop carefully. Compare offers. Look for
the credit offer with the lowest APR.
Compare the APR and the finance charge (which includes loan
fees, interest and other types of credit costs) of credit offers
to get the lowest cost.
Some firms will offer you a low cost guarantee that helps you
save time in comparison shopping. An example of this type of
guarantee is: "Must be a verifiable, bona fide offer from an
online payday loan provider. Excludes one-time, promotional
offers. Rate comparison must be based on a 14 day loan of less
How to cure the problem not the symptom?
Pick up meditation and prayer and I don't mean bombarding God or
whatever higher power you believe in with requests for money. I
mean take the time to get to know your higher Self that can help
you look at life in a more balanced fashion. This knowledge can
help you control emotional stuff which are major reasons for
out-of-balance expenditures and emotional spending binges. Who
knows, you may even be able to have a direct communication with
God and straighten out more than your finances.
Remember that the outer world is just a reflection of us inside
and we cannot change our outer circumstances without changing
what we think in our hearts.
The need for money usually stems from a combination of low
income and lack of disciplined spending habits. Take steps to
improve your income which usually starts with better education.
Look for ways to improve your education and acquire new skills
that can help you get better jobs and higher paying positions. I
know it is hard to get enough energy at the end of 50 - 60 hour
week to study. But, don't you rather have the stress of studying
for a better future for a limited time than to keep worrying
about payday loans for years to come?
Also, with the Internet, you may have small business
opportunities that did not exist before.
Take a good look at where your money went during the last six
months. If an item shows up over and over, it is no longer a
one-time deal. Make a budget that really reflects your monthly
and daily expenditures.
If you need help working out a debt repayment plan with
creditors or developing a budget, contact your local consumer
credit counseling service. There are non-profit groups in every
state that offer credit guidance to consumers. These services
are available at little or no cost. Also, check with your
employer, credit union or housing authority for no-cost or
low-cost credit counseling programs.
Finally, if you decide you must use a payday loan, borrow only
as much as you can afford to pay with your next paycheck and
still have enough to make it to the next payday.
What are the benefits?
So what are the benefits to this payday loan? It sounds like
there isn't any.
With so many companies cropping out every day offering this
service and thousands of individuals using them and even
offering testimonials to their benefits, I have to concede that
there are benefits.
To start with, many times Payday Loans are really the only fast
alternative to get you out of a financial jam. The qualification
is hassle free. You can get a yes or no answer fairly fast and
it can be done online.
In many cases there aren't any credit checks.
Some lenders do not even require you to fax them documentation.
Your inquiry is kept confidential.
And you can have the cash by the next business day.
* DISCLAIMER: Vishy Dadsetan, http://www.MyPersonalFinanc
e.com or My Favorite Shop, Inc. do not endorse any reverse
mortgage product or lender. This article and website does not
provide legal, accounting, or other professional services. If
legal or other expert assistance is required, the services of a
competent professional should be sought. Although Vishy Dadsetan
has made every effort to ensure the accuracy and completeness of
the information contained in this site, it assumes no
responsibility for errors, omissions, inaccuracies, or
About the author:
Vishy Dadsetan writes articles that can actually help your
clients. Articles just like this one. Additional information at:
payday loan service and payday
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