End of the working month is one of the busiest times for a person. All the expenses are poured out and the income is received as well, making it absolutely necessary for one to sit down and do some calculations.
So the working month is about to get over and you are short on cash, but have make an emergency purchase… what do you do? This is where payday loans come into scenario. They are short-term loans that are taken out with the guarantee that they will be paid back once you get your wages/salary.
Among all other loan, payday loans are the most controversial simply because of their exceedingly high interest rates that leads to the ‘loan shark’ nature.
At first, the borrower writes a personal check to the lender stating how much she or he wishes to borrow and adds a fee amount with it. The lender, in turn, gives money to the borrower, minus the fee. The amount of fees charged for a payday loan is generally a percentage of the face value of the check or a fee charged per the amount borrowed—like, for example, for every $100 or $200.
Also, which is seemingly the most dangerous part and should be avoided by any means necessary, for every time you extend the loan—the term for which is ‘’roll over’’—you have to pay a fees for the extension.
According to The Truth in Lending Act, it is absolutely necessary to disclose the cost of the payday loans. Among other information, you must receive the finance charge (a dollar amount) and the annual percentage rate or APR (the cost of credit on a yearly basis) in writing form.
The cash advance loan secured in a payday loan is a very expensive credit. For example, if you want to borrow $100 and wrote a check of $115 to the lender in order to borrow that amount for a certain period of time—say, your next payday—the lender will hold it till you get your next pay. Now, if you pay on time, in cash, then it is all great.
However, the problem arises when you fail to do so. With each extension, you have to pay a fee. Generally, after, say, 4 extensions, you would have to pay a total of $200 for the $100 that you took on loan instead of the agreed upon value of $115.
So, as you can interpret, applying for a payday loan is a very risky measure if you can’t pay them back in time. They act like leeches, slowly sucking your blood out without you even knowing until you start feeling dizzy and ultimately passing out.
Like it is the case with every other loan, the first step requires you to sit with 4-5 lenders and see what they have to offer. Conduct a very thorough enquiry with all the lenders and use your best judgment to pick one. Once you are done shopping for lenders, the next step is the obvious one of filing up the forms and agreeing upon conditions.
Once the request for loan is approved, the money will be deposited directly to your bank account. In order for this type of application process to work, you have to fill up the form providing your bank account number (obviously) and your Social Security Number.
Before you jump into the water, you need to be absolutely sure of the repayment terms—how you are going to pay and when. Reiterating what I wrote earlier, you have to be absolutely sure to pay the amount back in time and not face the penalty for a failure to do so since the penalty fines are back-breaking.
However, the world isn’t all gloomy as there are some lenders who permit an extension of time to up to 6 months. In order for this to happen, you have to ask the lender about what you should to get an extension at least TWO days prior to the original deadline.
The wisest thing to do would be making this extension aspect clear even before acquiring the loan—as in, make sure that your lender will actually give you an extension if you fail to pay on time.
All in all, loans are best to avoid. And, in that regard, none more than payday loans since their deceptive and exponential nature could amount to more trouble than even the biggest types of loans.