August 13, 2009

Payday loan—pros and cons

Payday loan, also sometimes referred to as cash advance loan or check advance loan, is a short-term loan with a high interest, which is generally meant to meet the urgent need of money by the borrower. It is the easiest and the fastest way to get a small amount of loan. No major paperwork is needed to get such kind of loans approved. The amount of loan is generally very low ranging normally from $50.00-$500.00. This is good for those people who do not have credit cards, who has huge debt, or who need instant cash to pay their utility bills or so.

How it works

You will issue a post-dated check to your lender for the amount you are borrowing along with applicable finance charges. E.g., you need a cash amount of $350.00 instantly. Hence, you would write a check for around, say, $390.00, which will include the finance charges and the principal amount borrowed. If you are unable to repay the amount by the next payday, your lenders, along with some additional finance charges, will encash your post-dated check. You may also pay only the finance charges and make the loan roll over for the next payday. In this case, again you need to pay finance charges. You may also sign over electronic access to your bank accounts to repay your payday loan automatically.

Advantages of payday loans

There are surely some benefits of taking a payday loan. Firstly, there will not be a credit check of your report. Application for such loans is very easy. You may apply through internet or in person or over the phone. The process to get such loans approved takes very little time. The loan amount is automatically credited to your bank account within a few business hours. You do not need to have a credit card to get such loans. It is secure, as your financial information is not shared with others. It is quick and fast, and no immediate costs are burdened over you.

Disadvantages of payday loans

The first thing that will make you think many times to get such loans is the rate of interest. The interest rate is very high. The Annual Percentage Rate (APR) is approximately 360%. Isn’t it too high to receive such a loan? If you cannot pay the amount by the slated time, then your rate will go higher and higher. If you fail to repay the loan, you will be charged with bounced check fees. This will negatively affect your credit ratings. Your bank account(s) may also be closed if you have repetitive returned checks. It will further hamper your credit report.

What should you do?

Every aspect of life has pros and cons. The desired result depends on how you manage it. The same applies with payday also. If you are in urgent need of cash, the payday loan is a better option. By all means, you need to tackle your present financial crisis. But, do not make it a habit to take such loans unless it is really emergent. You just need to be wise in using it and be careful to repay it on time. Make it only a last resort. All the best of luck.


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