Money is tight and the electric company is literally at the door to shut off the power. What do you do when you can’t put off a past-due bill any longer? Thinking about getting a Payday Loan? Being maxed out on credit cards and not having any cash on hand can make it a tempting option, but that doesn’t mean it’s always the best choice. Let’s dig in a bit.
What Is a Payday Loan?
A payday loan, also called a personal loan or cash advance, is a loan that’s meant to be paid back within a short time frame, and it’s not backed by a traditional financial lender. It can be helpful when you need a small amount of money and have nowhere else to turn, but it has some major downfalls. Numerous fees and borrowing rates, which can exceed 400%, can make these loans dangerous to the unsuspecting consumer.
Good Option When There Aren’t Any
Payday loans can cost a lot in the long run, but if you need cash fast, they can deliver. Applicants do need to qualify, though, based on:
- Proven income.
- Verifiable address.
- Having a valid checking account.
- Not owing on other outstanding payday loans.
Part of the loan process is signing permission to have funds deducted from a checking account on payday. The problem is the amount deducted is often considerably greater than the original loan amount, putting many borrowers back in the red again.
Bad FICO?
Every working adult has a credit score, which is based on reports from credit agencies like FICO. A score over 650 is considered good, and the higher the number, the better. If a financial emergency arises, a low credit score can make it difficult to get approved by a local bank or credit union. With a payday loan, borrowing requirements are laxed. This can make it a viable option, but only if funds can’t be accessed with better terms and rates.
Fast Cash in Minutes
Facing a utility shut-off, having to visit a sick relative or being hit with an unforeseen plumbing emergency are just a few reasons why someone might need cash fast. A payday loan can deliver. Most towns have payday loan offices, and it’s easy to call and set up a same-day appointment. Payday loans are also available online, but use caution to avoid getting scammed
Break the Cycle
The biggest issue with payday loans is that it can be tempting to take out another loan to pay off the first one. The cycle can continue beyond that with new loans through other payday lenders. This is because some borrowers go in having no idea how much they’ll owe at the end of the pay period, which leads them to borrow more to cover costs and fees. This can make it impossible to break the borrowing cycle.
A payday loan should only be used in an emergency, and the terms of the loan should be fully understood. It can be a great resource in the right situation, but understanding its pitfalls is the only way to ensure a successful transaction.
~Here’s to Your Success!
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