Many people, at some time or
another, will run into an emergency where cash is needed fast. This is
especially true when the economy is bleak. A payday loan is one way to get
quick cash and it is attractive for the person who no longer has a credit card to
fall back on due to its balance being over limit or the account closed. A
payday loan is one where you borrow money and pay it back at your next payday
which is typically in a span of two weeks. Payday loan companies oftentimes
advertise that they are here to help but do they really provide true help? Are
they are wise choice? Let's look at the facts about payday loans to see.
The cost of the loan will be very
expensive. Annual percentage rates on this type of loan vary but will typically
be above 300% APR. For example, let's say that you borrow $300 until your next
payday in two weeks. The lender advertises a loan fee of $30 per $100 borrowed.
If you repay the loan within two weeks, you will pay a total of $390 which
means an APR of 780%.
They are rarely offered to the
unemployed. You might see some who offer payday loans to the unemployed but
these advertisements are mostly found in the United Kingdom. In the United
States, it is highly unlikely that you will be able to get such a loan without
a job. A lender would consider the unemployed person's situation too risky.
Also, the U.S. Treasury Department does examinations on the books of lenders
and with all the recent economic troubles caused by bad loans it is possible
for the lender to get into serious trouble for taking on borrowers who are
high-risk. Check the lender's service agreement to see if they offer unemployed
paydays loans if this is really what you want to do.
Likewise, it is rare for a
self-employed person to qualify. A person who is self-employed is also somewhat
of a loan risk because of cash flow fluctuations. A self-employed person
doesn't get a regular paycheck which in most cases disqualifies him from
getting a payday loan. However, some companies will approve a loan if the
applicant can provide proof of sufficient cash flow over previous months.
Be careful because of the addictive
nature of payday loans. Since they are so easy to get if you have a job, a
person can quickly learn to rely on them as a quick fix to financial trouble.
What typically happens is the fan of this type of loan gets quick money and
then when the due date for repayment arrives he doesn't have the money. In this
case, the lender lets you roll it into another loan for a two-week period
(unpaid interest included). For the borrower, finance charges will rapidly
accrue. Lenders don't allow unlimited rollovers and eventually the principal
along with all accumulated finance charges will be due. This is the point where
the borrower realizes he was addicted to easy cash.
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