Does it make sense to get a loan?
Taking out a loan has many advantages, but there are also some disadvantages that you should be aware of.
In today’s economic environment Alternative ways to make money to make ends meet are becoming more and more necessary. Some alternatives include borrowing money from friends/relatives. cash advances from employers; home equity loans and payday loans; The most popular of these loans is a payday loan, also known as a check/cash loan or post-dated check loan.
With the growing popularity of payday loans, more and more people want to know what a payday loan is and if it is the right solution for their situation. A payday loan is an unsecured short-term loan ranging from a few hundred dollars to as much as $1,500 in some cases.
The borrower usually secures the loan by postponing a personal check for a certain amount of money, which is credited to their account in the next repayment period. Payday loans are designed to help in situations where you need quick cash to cover an unexpected bill or emergency until your money arrives or becomes available.
It is short term and that is the main factor with this type of loan.
The idea is to get a loan to bridge a small bump in the road or ease a financial strain until your next payday. If you are considering a payday loan to solve a major financial problem, the advice is: STOP! A payday loan can lead to more serious problems down the road if used as part of an overall turbulent cash flow situation.
The most important thing to remember about payday loans is that you must pay them back on time to avoid paying crazy fees that can equal or exceed the loan amount! It is the extension of the loan and its late repayment that can create a great financial dilemma for the borrower.
The repayment period ranges from six months to ten years. Unsecured loans are offered by traditional financial institutions such as building societies and banks, but more recently by larger supermarket chains. An unsecured loan can be used for almost anything – a luxury holiday, a new car, a wedding or a home renovation.
This is good for people who are not home owners:
and cannot get a secured loan e.g. The repayment period for most loans is between four and eighteen days, depending on the terms agreed with the lender. The repayment schedule and method of repayment are agreed upon at the time the loan is granted. In most cases, the borrower agrees to repay the loan in full in cash on or before the due date. Additionally, some lenders can collect on the loan by depositing the borrower’s post-dated check into their bank account on a mutually agreed upon date.
In payday loans, a fixed interest rate is charged upon repayment of each loan granted. The average interest rate is between $15.00 and $20.00 for every $100.00 you borrow. Because payday loans have a quick processing time, the annual percentage rate (APR) is usually high. In some cases, the annual percentage rate (APR) is often 100%, 200% or even 400%.
If the borrower cannot repay the loan on time, the lending institution may agree to delay the loan to allow more time for repayment. The downside to extending a loan is that extra charges are added to your bill. For example, if the fee on a $100.00 loan is $15.00 and the borrower renews the loan three times, the new fee is $60.00.
This is an initial fee of $15.00 plus a triple amount added on every $100.00 you borrow. In general, the only important condition for a payday loan is that you have a job. Your job is to make sure you can repay the loan. You are expected to have a salary and therefore the money needed to cover the loan.
Good credit is not required or even required for a payday loan. The lending institution just wants to see that you are working and have a steady income. Essentially, your work is your warranty
Getting a payday loan is actually a simple process.
You submit an application and, if approved, sign documents proving your promise to repay the loan on the lender’s terms. Be sure to take the time to read the loan terms carefully and don’t be afraid to ask questions about their meaning.
Often these types of contracts are written in legal and financial language that is difficult for the average consumer to understand. If you think the lender’s representative can’t fully answer your questions, say so! If the terms of your loan are unclear, don’t accept the loan until you fully understand them.
Teachers always say that the only stupid question is the one you don’t ask. Correctly! Again, if you do not understand all the terms of the loan, do not sign the documents until the terms are fully explained to you. Otherwise, you are legally bound by these terms, which could be disastrous for you if you fail to comply with the terms of the loan. We like to think that everyone is out of date, but not all lenders are. Unfortunately, there are unscrupulous lenders out there trying to make a profit at your expense.
The NAACP and the Department of Defense found that payday loan companies have opened their offices strategically near military bases and in socioeconomically disadvantaged areas with predominantly African-American and Hispanic populations.
Many reputable financial institutions,
consumer groups and community organizations are doing what they can to shut down payday loan offices, but their efforts so far have been largely unsuccessful. Due to the often strict policies of reputable lenders, many people are lured into the payday loan cycle for its immediate benefits.
When emergencies arise and you need cash, payday loan companies provide quick and hassle-free cash. In most cases, most of them have no minimum credit requirements and do not conduct background checks. In most cases, all that is required to qualify for a payday loan is a recent payslip and proof of a checking account.
In these cases, payday loans and cash advances provide consumers with financial options in emergency situations. On the other hand, more and more people are falling into a vicious cycle of debt that can lead to financial disaster.
This is not good, especially when you consider that the loan may have been taken out to avoid financial ruin in the first place. With these pros and cons, the best advice seems to be to borrow when you really need it, but do so very carefully.
Being proactive is probably the best strategy, or as common wisdom says, “An ounce of prevention is worth a pound of cure.” Take an honest look at your family’s finances and find creative ways to avoid debt. Consider trimming the fat from your budget by pledging to save a little each paycheck and reduce your credit card and revolving debt.
