Unknown Dangers of Payday Loans
Payday is the best day of the week, or month in some cases. This is the day when we feel like we are rich enough to go out to our favorite restaurant, buy your spouse a special gift, and just have an all-out sense of security. For many people though, the payday is but a feeting moment in time when money goes into our checking account only as a very short stop on its road to repayment heaven. This is especially true for those of us with payday loans. Payday loans lend no time to the security of that large amount in the checking account.
What exactly is a payday loan, you may ask? A payday loan is a short term, low amount loan that is secured usually only until the upcoming payday of the borrower. These loans are normally secured with only a post dated check or electronic agreement for debit from a specified account on a specified day. These loans are normally from $100-$1000 and are normally easily obtained for anyone with a steady job and a checking account. These loans do not normally require a credit check, so they are more easily obtained by those with little or no credit.
These loans are meant for emergency purposes between paychecks when unforseen medical bills appear or to avoid late fees on other payments or overdraft fees in your checking account. These loans, however, should only be considered after all other options have been exhausted. These options include asking friends and family to let you borrow the money or borrowing by other means with a lower interest rate.
The interest rate on these loans may seem small when you first obtain the loan, but if you read the fine print or compound the interest to an annual percentage rate (APR), you will see that some range from 300%-500%. This amount is astronomical when you look ate the big picture. Normal loan rates for personal loans from banks and some other lending institutions tend to hold steady around 10%, sometimes less. These loans, however, are not always so easily secured, especially by those with poor credit. The fees on a payday loan may seem to be small when you borrow $200 and have to pay back $220 in two weeks, but when you figure the APR on that loan, you are looking at a much higher percentage than if you had borrowed the money from a family member or even a bank.
In situations where you have borrowed the money and cannot repay it on the due date, the loan can be rolled over for another pay period. Rolling over the loan usually results in serveral more fees that are due immediately. These fees could range from the amount of the original loan to more than twice the original fee for the loan.
Taking a loan from a payday lender can be a dangerous gamble. There are lenders out there who are not really lenders at all, but predators stalking the vulnerable for their personal and banking information. Please check the background of any payday lender that you are interested in borrowing from to make sure they are a reputable company. Do research online, via the company’s corporate office, and through your own personal contacts before actually submitting an application to a payday lender. Payday loans can be a lifesaver, but they could also easily lead to financial demise.