Pros and Cons of Payday Loans

Now and again we all need to find some money fast. This might be a time when you might be considering a payday loan. Payday loans are a fairly new financial tool we can use to get quick cash and can be the saving grace for those people who don't have any other means of getting emergency funds they need. For example just imagine that your car breaks down and you have no savings available to pay for the repairs needed. This is a case where one of these loans could provide you with the money you need to get your car back on the road straight away.

Some people refer to this type of loan as cash advance loans. Many different financial establishments are popping up all over the place, both online and at physical locations that can provide these loans. One good thing about this type of loan is that there is no need for a credit check. This will mean that if you have bad credit scores, you can still get a loan even when a bank, credit union or other financial establishment would refuse to give you one. There are some things that these companies normally check, however, simply because they want to make sure you will be able to repay them. Your income will probably be verified and you can provide check stubs, or have your employer write a letter stating how much you make each month.

Something else that these companies may need is a few references. You can usually use friends and family members for providing references. Sometimes they will call them before giving your loan, other times they only call if they are having trouble collecting payment and cannot reach you. Which brings us to one of the drawbacks of these loans -- you have to pay them back!

For an example let's say you take out a loan that requires an initial $20 fee for every $100 borrowed. So if you borrowed $500, you'd end up paying a total of $600 when your loan came due, usually in one week. But suppose you didn't have $600 in one week? You can often choose to renew the loan and pay the interest charges only. The thing is, the longer the loan remains unpaid, the higher the interest charges go. It's not uncommon for the annual percentage rate on one of these loans to go as high as 600 percent which is a pretty high rate by any standards.

So, payday loans are helpful if you have no other way to obtain the cash you need but they are very expensive. The smartest thing you can do if you decide to get one of these loans is to read all the fine print, understand all the fees you'll be liable for, and pay the loan back as quickly as you possibly can to avoid extravagant interest charges. Like any financial tool they do have their uses but if you use them wrong then they will cost you a great deal of money

Copyright 2006 Tim Bersaw - All Rights Reserved

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