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7 things you should know about payday loans

[Feb 17, 2011.]


Payday lenders offer fast cash in the form of a short-term loan, but they can be costly. The best payday loans are those with the lowest fees, for an amount the borrowers can afford to repay within the loan period.

Here are four advantages and three pitfalls of payday loans:

4 Payday loan advantages

  1. Payday loans are speedy. A short-term payday loan can be one of the fastest ways to get cash. Borrowers can apply in person, on the phone or on the Internet and receive funds immediately or at least within 24 hours.

  2. There are no upfront costs. Instant payday loans are meant for consumers who are in desperate need of cash, so all the costs are incurred when the loan is repaid.

  3. There is no credit check. Some payday loan borrowers lack a credit card or have overused credit cards and have bad credit. Since payday loans are based on the borrower's income rather than their credit score, lenders will not need to check credit.

  4. You maintain your privacy. Responsible payday lenders will keep their customer's information secure and private.

3 Payday loan pitfalls

  1. Make sure you can repay the loan on time. The fees and interest charged for extending the loan past the initial due date can quickly surpass the amount of the loan and lead to spiraling debt problems. Be certain that your next paycheck will cover the payday loan along with other expenses.

  2. Borrow the smallest possible amount. Responsible payday lenders typically limit instant payday loans to low amounts of money, but responsible borrowers should likewise restrict their payday loans to the funds needed for an immediate emergency. It may be tempting to borrow up to the maximum allowed by the payday lender, but this could lead to deeper financial problems if the loan cannot be repaid on time.

  3. Avoid too many payday loans. Consumers who take out numerous payday loans are clearly in financial trouble and should take steps to boost income and reduce spending. Multiple payday loans can be extremely costly because borrowers can rarely pay them back on time. Consumers who need financial counseling or help with debt consolidation, should look for a reputable credit counselor.

While payday loans can be convenient, payday loan borrowers should see the use of these loans as a signal that it is time to gain control of their finances and create an emergency savings fund so that the next time the unexpected happens, they are better prepared.


About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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