Is it Smart to Use Payday Loans?

Is it Smart to Use Payday Loans?

A payday loan is usually a two week cash advance that is made against the check in the name of the creditor. For example, if you borrow $100, you have to write a check for $115 dollars to the name of the quick payday loan service you are using. After the two week period the credit organization will attempt cashing the check or electronically withdrawing the money from your current account.

Paying $15 dollars of interest on $100 for two weeks equals 391% APR (annual interest rate). If you are using a credit card overdraft, the APR is not likely to exceed 40 per cent. Certainly, exceptions are possible.

There are many websites and brick-and-mortar companies who offer payday loan online services. Their clients are usually people who do not have a credit card and find it difficult to get a short term loan elsewhere because of bad credit history. Payday loans are one of the few options those people have got left.

Imagine finding yourself in the following situation. You have to pay utility bills and have just run out of all of your money. All you need right now is $100 to pay the utility company. If you fail to pay on time, you will be disconnected. To have everything up and running later, you may have to pay about $50 dollars in reconnection fees which is over 1,300% per year. However, taking a low fee payday loan of $100 will cost you only $15 (391% per year). It may sound reasonable to use such an emergency payday loan.

On the other hand it might be even wiser to consider some alternatives. For example, a pawnshop can provide good cash for less money against something of value. It may also be possible to get a cash advance from your employer. If you are an active community member, you can participate in a local community assistance plan. Finally, it is always a possibility to ask for a small loan from friends and family. All these al ternatives will be a lot cheaper than a very cheap payday loan.

When you go for an easy payday loan, you can get caught in the vicious circle. Some companies may offer the service of flipping the loan. In other words, after the period of two weeks expires, you can return $115 dollars for the $100 that you lent and immediately take the next $100 for the coming two weeks. It is not surprising that such a practice is even illegal in some jurisdictions as it may be very hard to get out of.

Some people question whether those 24 hour payday loan companies are offering a valuable service or perhaps they simply prey on the young and poor who have exhausted all other alternatives to getting cash promptly. In real life, such companies are earning on average only 15% interest on their capital as the number of bad debts is pretty high. Without them, those high risk debtors would have no access to credits whatsoever.

To sum it up, a fast payday loan online is extremely convenient and can get you out of financial trouble. Make sure that if you go for a payday loan, you will be able to repay it promptly. Otherwise, you may get yourself into a more complicated financial situation.

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Is it Smart to Use Payday Loans?

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