You need a loan that can be settled rapidly and paid back when you get paid again. But I’m still unclear on how payday loans function. Do you foresee these charges as being the beginning of a long series of fees and astronomical interest rates?
When funds are limited, it can be alluring to hunt for a quick solution. Getting a payday loan could seem like an easy way out of a financial jam, but the high interest rates and fees could end up costing you more than you bargained for.
Data from the Consumer Financial Protection Bureau shows that about a quarter of payday loan customers default, and that over 80% are forced to take out another loan within 14 days (CFPB). PaydayNow explains in detail on how payday loans work in a blog post.
What exactly is the meaning of the term “payday loan”?
Nearly 24 million adults, or 11% of the population, do not have a bank account, as reported by the FDIC. This may indicate a growing demand for alternate forms of borrowing like payday loans.
You may have seen signs promoting “quick cash” or “no credit check necessary” while you drove around your city. With an understanding of how payday loans function, you can determine if you truly require one.
Repayment periods for payday advances and similar short-term loans are typically no more than two weeks. If you have a postdated check or the number for your debit card, you can get cash immediately.
When the loan’s due date arrives, the lender will cash the check you’ve written to pay off the debt. One more payment option is to pay cash at the lending company’s location.
Payday loans are an option for people who need money fast but cannot wait until their next paycheck. Lenders’ interest and costs are far greater than those of a standard bank loan.
Should I be concerned about the consequences if I fail to return my payday loan?
The Consumer Financial Protection Bureau reports that over the course of a year, the average cost of a $1,000 payday loan is over $2,600.
A loan can be renewed if the borrower is unable to repay it by its original due date. In this case, the loan provider will treat the transaction as a new payday loan and assess fresh fees.
Before settling on a payday loan company, you should think about the following situation.
Let’s say you’ve got an unexpected charge for $200 that needs to be paid right away, such as automobile repairs, medical costs, or daycare. You will be charged $30 in addition to your first $200 payday loan. A payday lender is someone who lends you money in exchange for a postdated check.
But then something comes up and you are unable to pay back the $200 loan. Lender grants a 30-day grace period but increases late fee to $60 ($30 plus $30) on a $200 loan. Is there a plan B if the quantity of money in your next paycheck is lower than you anticipated? If you need more time to pay off your loan, you can pay another $30 to extend it. Your original $200 has been reduced to $100 after fees of $150 were deducted.
Would you be able to recommend any alternatives to payday loans?
Make sure you shop around for the most favorable loan conditions and interest rate you can discover if you ever find yourself in a position where you need to borrow money to cover a bill or make a major purchase. The interest rates and surcharges of payday lenders are through the roof.
Don’t assume you don’t qualify for a personal loan until you’ve talked to your bank. You can get the money you need from any of a number of different institutions that give loans at reasonable rates. There’s also the choice of establishing a credit line.
The stress of temporary money problems can be mitigated by establishing good financial habits in advance. Make sure you’re prepared for any kind of financial crisis by starting an emergency fund. The ten dollars may not seem like much now, but it will add up to a significant amount and serve as a safety net in the future.
If you tend to forget to set aside money for emergencies, an automatic transfer is a great way to start doing so without even giving it much thought. You can set up an automatic transfer from your direct deposit to a savings account.