Payday loans are the modern day loan shark. Everywhere you look there is some form of advertisement for a payday loan company. Take a drive down the main streets of where you live. Chances are you will see one or two payday loan companies. Take a ride on the information superhighway and you won’t have to look far before you see company after company begging you for their business. Open your email and you will find your mailbox full of offers from companies such as Quik Payday.
What are payday loans? According to an article found on www.bankrate.com, payday loans are loans issued against a paycheck. These are short-term, small loans that typically range from $100 to $500. People who use these companies are usually in a desperate situation in which there is not other means of obtaining money. They prey on those vulnerable such as those with bad credit. They may have had unexpected car trouble or there may have been sickness in their family. There are many reasons why people turn to payday loans. Payday loans can be easily obtained. You don’t even have to drive to a payday loan store near you. You can simply log onto the Internet and do a Google search for payday loans. Payday loans are also referred to as cash advances.
You only need to provide proof of employment and sign a few documents and then you are all set. If you apply for them over the Internet, you will have to fax in the requested documents. If you have applied for one over the Internet, the money will be put into your account within 24-48 hours.
These companies take advantage of people by charging them with very high interest rates. Payday loan companies simply loan you money until your next paycheck. Because these loans are short term loans the interest on them usually ranges from 300-1000%. Far more than what you pay on your credit card.
If you don’t pay the amount that you owe on your next paycheck, you are charged a refinance fee and the loan will continue until your next payday. Most of the companies that I have come into contact with allow you to refinance a loan five times. It is not in your best interest for you to continue to refinance the loan. As you fork out the refinance fee each payday, the original loan amount is still there. For every $100 you borrow there is a $30 refinance fee.
Let’s say that you borrow $200. The total amount due on your next payday would be $260. If you keep on extending the loan for up to the maximum of five paydays, you will have paid $300 in just finance charges. So if on the sixth payday you pay the loan back, you would have paid a total of $560 for a $200 loan.
Now after you have used all five of the extensions, you have the option of doing one of the following things:
1. Pay off total amount due: $260.
2. Pay your account down by multiples of $50 or $100 plus the $60 finance charge. So for the $200 loan you could pay $50 down plus the $60 finance charge with the total being paid of $110. If you continue to pay down your loan in multiples of $50, the finance charge does drop in increments of $15.
Now if you decide to pay it down in increments of $50 you will then have added another $150 in interest. So now your grand total would be $450 in interest alone. Then you add the original $200, you would have then paid out a total of $650 for a $200 loan.
If you must use a payday loan, the trick is to pay the loan off on your next payday. That requires that you budget your money accordingly. A lot of people are attracted to the idea of just refinancing the loan again but if you sit down and just think about it you will soon realize that it is not worth it.
I can tell you from personal experience how using these payday loan companies can send you unto a downward spiral. I would borrow from one payday loan company and then I would find myself not being able to pay on that payday loan so I would borrow from another company to help pay for the first loan and this cycle continued until I had nine different loans with nine different companies. I really had a problem that was far worse than the payday loans themselves but that is a topic for another discussion. It hasn’t been easy trying to get out of that mess. I was able to make payment arrangements with most of the companies. Fortunately they did allow me to break the total amount due into three or four payments.
Don’t ever get in a situation like I did. When I used these payday loan companies I felt worthless. As I continued to build upon each loan, the worthlessness grew until I was on a verge of a nervous breakdown. They do nothing for your self-esteem. Imagine having to resort to low-life loans like these. It is just not a very good place to be.
There are alternatives to using payday loans:
1. Develop a monthly budget and stick by it. If you have a budget, there should never be a time when you lack for money. If you do, then you are not sticking with your budget.
2. Live within your means. This sort of goes along with number 1. Don’t try to impress people with all the material things that you can accumulate. Chances are the people that you are trying to impress are up to their eyeballs in debt too. Instead focus on what you do have and improving your relationship with money.
3. If you are in need for a loan because of bills past due, try calling your creditors and making arrangements with them. They are usually willing to work with you. It is better to do that than to end up in debt with the payday loans and your regular bills as well.
4. Get overdraft protection at your bank.
5. If you have credit, take out a cash advance. The majority of people who take out these loans don’t have access to any kind of credit. That is why they used payday loans to start with.
6. If you must resort to a payday loan, plan on paying the loan back the next payday. Also don’t borrow more than what you are able to pay.
Before taking out a payday loan:
1. Read every piece of document that is given to you. Read everything in fine print.
2. Understand that this is not your typical loan. It can not help you build up your credit. In fact, it could be used to tear down your credit.
3. Make sure that you have no other option.
4. Usually the amount that you can borrow depends on income. The amount that most lenders lend out is between $100-$500. Make sure that you can afford to pay back the loan immediately.
In my opinion, payday loan companies should be outlawed. The terms in which they operate their business is out of this world. I will admit that it isn’t their fault that people default on these loans. We should know better. Until they outlaw payday loans, they will still be out there gradually luring more victims their way.