Is A Payday Loan the Solution to Your Problem?
By Sadiya Anjum
Payday loans are cash loans or advances taken against the next paycheck. These loans are extremely popular but have come under criticism for its obvious flaws. It allows a person to borrow a sum of money in cash up to $1500 within a short period of time. The borrower has to repay this loan by his next payday and the usual term period of this loan is about a fortnight. These loans can be easily obtained from a local lender or even online.
Payday loans can be an easy route to take when there is an urgent need for cash. It is a personal loan which can be utilized to pay medical bills, credit card bills, car repairs or for just about any other reason. Undoubtedly when you have little or no savings a payday loan can help you get past a tough situation.
These loans are also exceptionally easy to obtain which is probably the biggest reason for its popularity. A decent sum of money can be obtained within 24 hours which is super quick for any loan approval. This time frame lies in the fact that the paperwork required is to the minimum. No credit checks are conducted hence even with a terrible credit score one can easily obtain this loan. Some lenders will not even require you to fax any documents and the entire transaction occurs online. All one requires is a steady income and a bank account which has been active for at least 2 months.
Although payday loans sound great, they are still high risk loans for lenders hence you can be assured of some catch. The catch in a payday loan is the high interest rates. This rate is incredibly high making the loan a costly affair. Usually for payday loans, lenders charge a fee which is calculated and expressed as APR (Annual Percentage Rate) in order to help consumers compare rates.
To pay such a high amount as interest for a loan is not feasible and can severely affect your finances. Since the repayment period is usually about 2 weeks, an extension of the loan (rollover) comes at a high APR. This simply means that you continue to increase the extra cost (interest) of a loan.
In addition to the problems of a rollover, one may fall into the temptation of constantly taking out payday loans from time to time. Initial amount borrowed may have been small resulting in a bearable interest rate. But as you establish credibility of repayment with a lender, you may qualify for larger sums of money. This simply means higher interest. Remember that debt is detrimental and immersing yourself into it unnecessarily can damage your financial situation. Besides, the interest you keep paying on payday loans can be better utilized as a part of your savings.
However if one can be prudent and is organized in their financial life, a payday loan may not be severely damaging. This is provided one avoids rollovers and is prepared to shell out the high interest. Ideally a situation of lack of funds for an emergency situation should not arrive if you have savings. But some of us may tend to neglect this aspect or may not have enough in savings for an emergency situation. It is really a matter of realistically and carefully analyzing one’s financial situation before applying for a payday loan. A payday loan should be taken out only for an emergency situation and not when it is possible to obtain finances from other sources.
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