The Uses Of Payday Loans

[Jun 27, 2008.]

 

Loans are not exclusive to large sums of money like those needed for mortgages or buying cars. Many times loans are small, only a few hundred dollars, and are only needed for a few days up to a week. These loans can be granted through Payday Loans.

Payday Loans are short term loans usually between $100 to $500 and sometimes upwards toward $1,000. These loans can be granted by a number of establishments such as pawn shops, rent to own companies, and establishments specializing in these types of loans. On average, a Payday Loan lasts for up to two weeks, which is usually the next pay day for many of the borrowers. The APR or Adjustable Percentage Rate of Payday Loans are always extremely high.

Unlike other loans, Payday Loans are used mostly for everyday items such as:

• Groceries


• Gas money


• Toiletries


• School Lunch Money


• Entertainment

Other uses exhibit the precarious cycle of loans and repayments that many consumers fall into:

• Utilities


• Car note


• Rent


• Medical Emergencie


• Car repair

Often times, borrowers who take out a Payday Loan will require another one to help get through the next two weeks. Payday Loans must be paid back at the end of the loan period which leaves many without funds for the next couple of weeks.

In order to secure the payday loans consumers must present a blank personal check, photo ID, and proof of employment, usually the last paycheck stub. The borrower writes the check out to the facility making the loan with the amount of the loan including the fees. Usually, the fees can run up to $30 depending upon the amount of the initial loan. Many consumers fail to take the cost of fees into consideration when seeking the loan and are forced to pay back a much higher amount then what was previously planned for.

The check is held until the loan period is up. If the borrower does not repay the loan then the lender cashes the check which will bounce. That bounced check can have a devastating effect for the borrower as bank fees will rack up only adding to the amount of debt that is now owed.

Many have claimed that Payday Loans are a form of predatory lending due to the fact that many borrowers seek the loan out of desperation. Several states and government bodies have either banned or strictly regulated the practice of payday lending just for this fact.

Payday Loans are ideally used for one shot deals to help cover emergency expenses. There is a significant danger of falling into a repeating process of borrowing that can be extremely dangerous especially if borrowers fail to meet a payment on time.

The primary users of Payday Loans are people with bad credit or no credit who may feel as if there are no alternatives to these institutions. These borrowers are encouraged to speak to their banks or a financial advisor to find a safe lower risk way of paying their bills and other expenses.