You should have heard about payday loans by now. You might have even applied for one. There are several reasons behind the increasing popularity of payday loans today. Here are some of the reasons:
- It can be processed through the internet
- The processing is very fast
- It does not require a credit check
- There is no need to send or fax documents
- You can use the money for any purpose
Normally you would have to wait for a couple of days and in some cases even weeks before you would learn if your application has been approved or not. The procedure with cash advance loans cuts through all of that. Since they are processed on the internet you would not have to leave your home. You can even file your application from your office.
Lack of Credit Check
But the major driver of the popularity of payday loans is the lack of credit check. Bad credit is one of the major reasons why loan applications are turned down. Sometimes those with bad credit do not bother to apply anymore since they are aware that they would be turned down anyway. Payday lenders do not run that kind of check.
Then there is also no paperwork involved in this method of borrowing. All the information that they need would be required in the form which would be submitted online. That’s why there is no need for sending the much needed documents. All these factors make the use of payday loans popular today. More and more people are resorting to their use.
Payday Loan Warning
Don’t be drawn by instant loans. There are problems in connection with it just like with any other financial products. In case of short term loans the risk is even higher. So you must do some proper research first and find out the truth behind quick online loans before you decide to use them.
The High Interest Rate
The biggest problem that you would have with direct loans is the high interest rate that you would have to pay. When you compute it on an annual basis, it can be as high as 300% to 500%. Since the terms on these loans are very short you might not notice the high charges. It starts to pile up once you are forced to extend the terms of the loan. If you keep on failing in making payments, pretty soon you would end up with more than double the loan amount.
The high interest will make it hard for someone who is short on cash to make payments so soon after borrowing. There is a real chance that you would have to borrow again to pay for the first loan. Soon you would find yourself in a loan trap where you are forced to keep on borrowing just to stay afloat so that alone should be a convincing argument against instant loans serving as a payday loan warning.
Don’t Be Fooled
One of the reasons why people fall for payday loans is because of the attractive promises that they find in the promos and the ads of the lenders. One of the more misleading things about their ads is the way that they state the fees. They would state them in dollar amounts instead of the APR or the annual percentage rate. When you calculate the APR you would find that it is a lot higher than any other financial product that’s available today.
There is one case of a lender that offers payday loans. Borrowing $5000 from that lender would eventually cost you $40,000 after more than eighty months of payments. That’s something that the lenders would not tell you. Though these loans are meant to be short term, you can always have it extended if you can’t pay it yet. That’s what usually happens with many borrowers.
The problem is that if you keep on extending the term, the total amount that you owe would grow too many times of what you actually borrowed. You would find yourself owing thousands of dollars and your financial situation would be worse than before. You might think that the scenario is the worst thing that could happen and therefore an isolated case, but in reality there are many borrowers who are struggling now because they once thought it would be a great idea to use a payday loan failing to heed a payday loan warning.
What You Can Do
There are many things that you can do so that you would not have to resort to using payday loans. The most sensible thing is to cut down on your expenses. If you reach a point where you are forced to borrow then that just means you are spending way beyond what you are actually earning and you need to cut back some. Use a budget that is realistic and stick to it.
Negotiating with Your Creditors
If what is forcing you to borrow is the need to pay some of your debts then a better alternative to that is to ask your creditors for a better deal. In most cases they would be willing to give you a break. They might lower the interest or even extend the payment due date. The important thing is that you have to try.
Cash Advances and Credit Union Loans
If you find that borrowing is inevitable then why don’t you try to borrow from a credit union? You can be sure that the rates and terms that have are better than a cash advance lender. What’s even better is if you can ask for a cash advance from your employer. Technically, that’s not borrowing money at all because that is your salary that you would be getting in advance.
There are many ways that you can stay out of payday loans. You should try those first before taking the plunge because it can be expensive for you.