What do you know about payday loans?
Have you taken out one before?
There is no doubt that payday lending is a controversial and a serious subject. According to statistics, a major portion of the population uses it on a regular basis and the transactions involved in this form of lending amounts to billions of dollars. But even more urgent is the fact that there have been many experts and authorities on finance who have said that payday loans are more hurtful than helpful to consumers.
What Are Payday Loans?
Payday loans are short term loans that are given with the paycheck of the borrower used as a security.
That means when the loan would have to be paid back on the borrower’s payday. A lot of consumers turn to payday loans because of the convenience and the speed by which it can be processed. It is a lot faster when compared with other loans. The speed and convenience of payday loans was further improved by the use of the internet. Instead of operating from storefronts, cash advance lenders are now offering their loans through their websites. The whole process is now done online.
Using payday loans you can borrow a portion of what you will be getting from your paycheck. In the past you would have to issue checks for the loan amount plus the fees. But lenders have made some changes recently. Instead of requiring borrowers to have checking accounts, all that lenders require is that borrowers should have bank accounts.
When you get your paycheck, the lenders can take out the amount directly from your bank account through direct debit or through CPA. If you were asked to provide checks instead, then they could just cash the check.
The Convenience and Speed of Payday Loans
The speed and convenience of payday loans are the main reasons why this form of borrowing is so popular today. An online payday loan can now be processed in a matter of hours. Since the application is done through the internet, it can be done anytime. If you are in need of cash quickly for example and you do not have the time to go to the office of a lender. You can just turn to the online application system of payday lenders and get the money you need quickly.
The lack of requirements and documents is also a huge factor in ensuring the speed of payday loans. Because there are no documents that ought to be submitted and no credit checks to be run, a lot consumers who cannot use other types of loans turn to cash advance loans.
Major Issues with Payday Loans
But experts have cited that there are many problems in connection with payday loans and these issues leave consumers more vulnerable to bigger financial difficulties. The major problem in connection with this kind of loan is the cost. A typical payday loan that would last for 2 weeks, can have an APR or annual percentage rate of 390% to 521%. You don’t have to be a financial genius to realize that’s a very high interest rate. There are no other financial products charging that sort of interest.
Researchers that have studied payday lending have also discovered that loans being “churned” account for more than 75% of all the payday loan volume. New borrowers only comprise 2% of the total transaction. What does this mean?
It means that people using payday loans are stuck with it. They are in a debt trap. They cannot afford the loan so they would just have to borrow again to keep it going. Payday lenders claim, after they have drawn fire for their practices, that they never encourage borrowers to use payday loans as short term solutions to cash problems, but if based on statistics payday lenders earn their profit from those who borrow repeatedly.
There are other equally alarming figures, but the bottomline of it all is the fact that payday loans can be a dangerous route for any consumer. For someone who earns a small income it is doubly dangerous and unfortunately, they are the ones who are most prone in using this method of borrowing to solve their financial issues. So if you have been giving some serious thoughts about using payday loans, then it is probably time to rethink your move again.
Alternatives to Payday Loans
If your plans for taking out a short term loans have been put to a halt by the things that you have learned about it, don’t worry. There are plenty of alternatives out there that you can use. To help you and other consumers, we have listed here some of the best payday loan alternatives that you can use.
Getting Your Finances in Order
Okay, this is not really an alternative in the sense that you can use it to get cash quickly, but it is by far the best move that you can make. Setting your finances in order is easier said than done. It takes a great deal of effort if you were not used to it. First of all you have to come up with a realistic budget and stick to it. You can then cut down on costs and increase your income. If you do it right you would soon have enough savings that can cover for any emergency expenses, without having to resort to payday loans.
Borrowing from Credit Unions
Credit unions offer most of the services that you can get from financial institutions and that includes loans for small amounts. The main difference between banks and credit unions is that the latter are not driven by profit alone. They are mainly there to help out their members. You have a good chance of getting a good deal from a credit union.
There are different types of credit unions out there. You should pick one that has something in common with you. Find a credit union that is for people who has the profession as you or one that is based in your community.
Some people would rather face the high cost of payday loans than face their boss when requesting for a cash advance. But is it really such a bad idea? You are the best judge of whether your boss will understand it or not, but you should at least give it some serious thought. By just getting a cash advance, you will be avoiding the high interest and the hassle and stress of worrying about payment. As long as you have a good standing with your company and you don’t do it more than once, then there is nothing wrong with getting a cash advance.
Secured Credit Card
The use of a secured credit is a particularly good way of resolving emergency expenditures for those with bad credit. This is a type of credit card that is secured by a payment of a cash deposit. The amount of deposit that is paid initially would determine the credit line. The deposit serves as the security. It can then be used for payments. This is a very good way of building up a bad credit. The amount that would be available to you with the use of a secured credit card is limited but it should be enough for most cash emergencies.
Peer to Peer Lending
Have you ever heard of peer to peer lending? It is a form of service where members lend to each other. The interests can vary but the idea here is to allow consumers to lend money to those in need. The aim here is twofold, they want the members who are acting as lenders to earn from the transaction, but at the same time, they want the member borrowers to get the money they need without having to pay too much for it. You can find this service is available online.
If you are embarrassed to ask for a cash advance from your employer, then you will even be more embarrassed to use this option. Some people find the idea of borrowing from their friends and even relatives to be unseemly, but if you look at it, it is a far better option than having to shoulder a loan that could double in a very short period. When you borrow personally, you do not have to worry about interests and having to pay on time really. But that will always depend on your personal circumstances.
Talk to Your Creditors
Are you thinking of taking out a payday loan in order to pay for a bill that’s coming due? If that is the case, then why not talk to your creditors and ask for some extension on the payment date? You should give it a try and you might be surprised with the results. If you do it on time and if you don’t ask for extensions all the time, you would be surprised by how much time they would be willing to give you. It is in their best interest to do so.