Have you ever been in that situation where you really need money? Many of us would answer yes to this, as the need for money can sometimes arrive unexpectedly. The reason behind this may be a check that bounced, an emergency car repair, or a bill that has to be paid no matter what. The list is just endless, but before you consider a payday loan, it is important you ask yourself whether you know the truth about payday loans.
What It Is
A payday loan is given out for a short period for a small amount of money, which is usually less than $1,000. The idea behind one of these loans is also referred to as a check loan or a cash advance. The loan gives the person some money to tide you over whilst you are waiting for the next payday. It is important you know the truth about payday loans before you consider one. A payday loan will usually need access to your checking account. This is to:
- Deposit the loan
- Access the repayments funds
With a payday loan, you can easily get funds in the case of an emergency, but the truth about payday loans is that they are not a good financial decision to make.
Consider the Cost
When it comes to the truth about payday loans, the first point you are usually unaware of are the costs. The yearly percentage rate for these loans can go to as high as 2100 percent. When it comes to borrowing, it is vital you borrow from the source with the lower yearly percentage rate as possible. Another truth about payday loans involves the amount of interest you are paying. This is not always clear due to the fact the percentage rate is calculated annually.
How It Works
- You firstly pay a fee for borrowing money.
- For every $100 loan, the fee is between $15 and $30.
- When the payday comes around and you have the money, you then pay this.
- However, if you cannot afford to pay this, you can roll over it for another fee.
- This way the consumer faces an increase in expenses.
- A big truth about payday loans has to be their enterprise, which is to make lots of money.
The worst truth about payday loans is regarding the individual’s bank account number. When the consumer gives this to the lender, the lender can make automatic withdrawal.
A further truth about payday loans involves the loopholes. These are many, providing only little protection to the consumer, with a number of states setting limits for loan rollovers. However, they do not limit opening a new loan the same day the previous loan is paid off. Other states have a 24-hour waiting period for the new loans, with others having no restriction whatsoever.
Alternatives to Payday Loans
The truth about payday loans usually raises more awareness and results in individuals looking for alternatives. Well, we have you covered! Even though you can get instant cash with a payday loan, you really do not want to take the risk. The advertisement of payday loans shows how it can build your credit, but in reality, it is a route that is both risky and expensive to take. Prior to taking out this loan, it is important one is able to afford expenses with their current paycheck. If you are finding it difficult to do this, you may want to consider one of the alternatives below:
- Credit card interest rates – these tend to be lower than what you would have to pay with a payday loan. If you have access to credit card cash advances or credit, you should choose these resources instead of a payday loan. You may be able to increase your limits on the current card or open a new credit card.
- Obtain a small loan from a credit union or a bank – short term and small loans are very common as credit unions and banks offer substitutes to payday loans to their clients.
- Go for a second job or sell some belongings – you may consider babysitting even if it is for a night to tide you over!
- Make a budget- if you find it difficult to make your money last up until the next paycheck, you should create a budget, which will help decrease your expenditures.
- Emergency fund – if you already have an emergency fund in place, this will always prevent you from taking out loans in the need of an emergency.
- Overdraft protection – if you currently have a payday loan, maybe it is time to get overdraft protection on your bank account.
The Bottom Line
The process of borrowing payday loans can be expensive, which is very tough to break. The payday loan industry takes advantage of individuals who have limited resources. If you are finding it very hard to make ends meet and are in debt, you may want to think about financial counseling as a way of coming free from your struggling situation.