There are many things that can cause you to face a cash shortage from time to time. For example, you may have overspent last weekend and may now be feeling the financial pinch. Perhaps you have appliance or car repairs to make, an insurance deductible to pay or something else that is causing a financial issue for you. Many people who need extra cash to make it through until their next paycheck arrives turn to payday loans. Before you apply for your first payday loan, it is important that you fully understand what these loans are and how they work.
What Is a Payday Loan?
A payday loan is a short-term loan, and you generally have to repay the entire loan balance in full within a few weeks or less. In addition, these loans have very high interest rates as well as high loan fees. These vary by state and by lender, but you can generally expect to pay much more money when you repay the loan than you originally borrowed. You often can borrow up to a few hundred dollars through a payday loan, which may make this a suitable source of financing to get you through your current financial issues. They also have a very fast loan application and funding process as well as easy underwriting criteria. Most payday lenders do not review credit reports or have very lenient credit requirements, making these loans suitable for individuals who have a bad credit rating.
What Are the Dangers of Payday Loans?
While payday loans are seemingly beneficial on the surface, they can be very costly and very difficult to get out of. Many individuals who take out a payday loan are unable to repay the full loan balance plus interest and fees within the loan term. Because of this, many will renew their loan term for another period. This can result in even greater interest charges and loan fees. Altogether, the individual is in a much more dire financial situation at the end of the payday loan term than they were when they initially took out the loan because of the interest charges and loan fees. If you fail to pay the loan back, lenders have various options available. Many will call your personal references, and this can damage your personal reputation. Others will take the matter to court. If the court rules in the lender’s favor, your wages may be garnished or your assets may be seized. Because of how difficult payday loans are to pay off, these outcomes are very real scenarios to consider.
What Are Alternatives to Payday Loans?
Many individuals who apply for a payday loan unfortunately feel as though they have no other choices available to them. They may be in urgent need of cash within the next day or two, and they may have a poor credit rating that prevents them from applying for a loan. While this may be the case with you, rest assured that there may be other options available rather than turning to costly and dangerous payday loans. For example, you could sell some of your rarely used items online or to a pawn shop to raise money quickly. You can also use your time and skills to earn money fast, such as by offering to babysit a friend’s kids or mowing lawns. Another idea is to use a cash advance on your credit card or to ask a friend for a short-term loan. With these and other options available, you may be able to raise the money you need in a very short period of time if you focus your time and effort in the right direction.
A payday loan can provide you with a source of fast cash, but many people have creative alternatives they can consider. Take time to thoroughly review and pursue all options available before applying for a payday loan. If you still feel the need to apply for a payday loan, take time to think through your repayment strategy. Understand the full amount of money that is due by the due date, and learn what the due date is. Then, review your budget to ensure that you will be able to pay the loan off. If you cannot make the final loan amount, you ultimately should not take out the loan regardless of if there are other options available or not.