When faced with a mounting pile of
bills every month, most people focus and work harder to make sure that they pay
all of those bills, put food on the table and have a little bit left at the end
of the month to make life a little bit more bearable. But what if the
unexpected happens? If you have an unexpected expense like a car repair or a
vet bill for you sick cat, what do you do? Do you look to your savings account
to help you through this immediate need? Yes, a lot of us do just that. But
what if you don't have any significant savings? That's where you may need to
borrow the money that you need in a short term financial emergency.
First of all, what is a payday loan?
Simply stated, a pay day loan, also
know as a cash advance loan, is a short term unsecured loan that you can get
online or at a local shop in most any sized town. The terms of the loan are
generally not very favorable for the borrower, and the risk for the lender is
probably some of the highest in the industry. The term of this type of lending
is generally about two weeks and this is where it relates to your payday
because most people get paid about every two weeks. At the end of the term, the
lender will get his payment back directly from your checking account or from
the check that you wrote to cover the loan, plus fees of course.
How do you qualify for a payday
loan?
Have a pulse. Okay, maybe that's not
the best answer, but it's not far from the truth. Basically all you need is a
steady job, a checking account and be eighteen years old. Yep, not much more
than a pulse. You don't need a high paying job with a 15 year history, because
you are not going to be borrowing that much money in the first place anyway.
Typically most people only borrow a few hundred dollars, but that few hundred
dollars is expensive.
What are the interest rates for
payday loans?
Well that all depends on how you
look at it and calculate it in relation to the period of time you have the
loan. Most of the time, you will pay a simple fee, so an interest rate really
does not come into play like it does with traditional lending from a bank. The
fee on a say a $200 loan may be in the range of about 30 dollars or so. That
may sound reasonable if you need a loan quickly, but if you think of it in
terms of an APR, or annual percentage rate, then the interest rate is 391%. I
don't care who you are or how much money you have a 391% APR is high, very
high.
That's why payday loans may not be
your best option because it is very expensive money when the rate is
annualized. But a $30 fee may be a no brainer to you if you need a couple
hundred dollars to get your car fixed so you can get to work. It's all about
how quickly you need the money, right?
Here is the most important point
that you need to remember about payday loans.
This type of loan should only be
used to help you out in a short term financial emergency. They should never be
used to fix a long term financial hardships.
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