Payday loans should be used as a short term loan, that you can use to help you through difficult times when you are short of money. Before taking out a payday loan, you need to know the costs of doing so, this will stop you losing a lot of money in interest rates. In this article, you can have a quick overview of just how a payday loans works. Additional facts and information about the correct use of them and safe business deals will also be tackled in this article.
Definition of Payday Loans
Payday loans are loans that are normally applied for by people who are in need of some quick cash. Payday loans are there for when you are temporarily short of money and need some for an emergency. The normal time frame for a payday loan is about a couple of weeks. This only applies if you ask to borrow a small amount, like a couple of hundred dollars.
When you apply for a payday loan, you will usually have to write a cheque out for the amount to be borrowed, which also include a fee and interest. This will then have to be left with the lender.
But what will happen you you do not repay your loan on time? Well you can have the loan extended or rolled over, if you wish not to you do not have to repay it all at once. But it should be noted, that if you do not repay it all at once, you will find that your fees keep on accumulating at an alarming rate.
Payday Loans Costs
In general payday loans are quite an expensive way to borrow money. People who do take this route to borrow money pay a annual percentage rate or APR that amounts to an overwhelming percentage. As an example, if you have borrowed $200 to be paid back in two weeks, you can pay a fee of $40 and if you do not repay the borrowed amount and the fees in that time, you may find it very disturbing that you will have pay a ever increasing interest rate. This kind of percentage can be quite alarming, especially for those who are only able to make repayments of a set amount that there budget will allow.
Pitfalls of Payday Loans
One of the main pitfalls of payday loans is that when you take one out it does not really solve your problems. They can make the problem even worse, this is because of the high interest rate you will be charged. Regardless of what your problem is, the loan company will not really care as long as you make your repayments. Because of the high interest rate you are charged on what you have borrowed, instead of helping you it can very often pull you down.
Although, in an emergency or a time of crisis, payday loans can be very useful. You need to consider all the risks before applying for one. At certain times payday loans do make a lot of sense, especially if you are in desperate need of some quick cash. This would only apply to short term payday loans. There is a total difference with long term payday loans.
Problems will arise, if the cheques you have written out to the loan company bounce. This will appear on your credit file and report. The result? You will find that very few banks are willing to deal with you.
Payday Loan Alternatives
There are plenty of alternatives to payday loans. These are a few:
o Having your own emergency cash or savings fund, but this one is often easier said than done.
o Open a credit card for emergency purposes, again this can be dangerous, as a lot of people will just end up using the card anyway.
o Get a part time job (but this may take some time and will not be very helpful when a on the spot emergency arises)
o Consider a peer lending service for a better and more honest deal.
To sum up, payday loans are ideal in times of crisis or an emergency, but must only be looked at as a short term solution to get you out of trouble!