Let’s face it: sometimes, we get a bit behind on our bills and need a little extra help to tide us over until the next paycheck hits our bank accounts. While there are many alternatives to receiving funds quickly, some consumers opt to try out payday loans. A payday loan is extremely useful in that it offers consumers a loan of up to $500. However, it remains highly controversial due to its interest rates. Some critics even say that consumers should avoid the payday loan altogether.
What Are Payday Loans?
Payday loans are, in short, high-interest loans. Some states charge as much as 36% interest for a single loan. Although getting approved for a payday loan is a simple process, consumers are limited with the amount of time that they have to pay is back. As the name implies, a consumer must fully pay back this loan on his next payday.
What are the Pros?
Whether one lacks strong financial habits or simply had an unexpected expense arise, a payday loan could be highly useful in helping one to get caught up on his bills.
Lenders aren’t usually very picky about giving out loans, and the entire application and loan process is quick and instant; the loan is deposited into your bank account the very same day.
If one needs to renew his loan, he can do so by paying only the interest fee.
What are the Cons?
The downside to a payday loan heavily outweighs the good in that having the ability to rollover a loan may not always be a good idea. After paying the interest fee to extend the loan for an additional pay period, the consumer will have to pay that fee again along with the loan itself, causing the consumer to pay even more in interest over the life of the loan.
A payday loan is often considered to be a trap. People borrow when they are behind. However, it is often difficult to get caught up financially when one is behind. Once a payday loan has been taken out by a consumer and paid back via automatic deduction from his bank account, the consumer usually returns to the lender soon after to apply for another loan. This cycle continues until a consumer eventually gets caught up on his expenses or finds a way to avoid the payday loan trap.
Ways to Avoid Them
To avoid a payday loan and the fee that comes with it, consumers have a few options. They could
- borrow from family and friends
- pick up odd jobs or find other ways to increase their income
- find out which options their banks or credit unions offer. Usually, financial institutions offer much lower fees than the average payday loan
What to Remember
When one is a little backed up on bills, a payday loan could be a tempting route. However, if you keep in mind that a payday loan has both its pros and cons and that it isn’t the only option out there, you will be able to make the decision that will best meet your needs.