About Payday Loans?
If you're lucky, you might not be familiar with the term "payday loan". A payday loan is supplied by a third-party lender and it is supposed to help consumers get out of last-minute financial jams by offering a cash advance on an upcoming paycheck. While getting out of a tough spot is certainly a good thing, the interest charged by payday lenders typically surpasses 100%, which could make a tough spot even tougher. So, are payday loans a great service for those in need, or are they an example of loan shark companies preying on people's desperation? We will get to the bottom of it in the following article. (Keep your credit score healthy and your debt under control, check out Six Major Credit Card Mistakes.)
Why wait for payday?
A payday loan works like this: You're short on cash and can't wait until your next paycheck comes around, so you head off to your local payday lender (some of whom are even online these days), and ask to set up a payday loan - usually somewhere between £50 and £1,000 although the higher limits are usually harder to qualify for. You write a post-dated check for that amount plus the fees you now owe to the lender. You get your money right then and there and, when payday rolls around, the lender will cash your check and collect its profit.
Typically, people who use payday loans find themselves in situations where they are presented with few other financial alternatives. In their eyes, a payday loan is a way of staying afloat for a short period of time without having to ask for handouts. People with low credit or no credit are ideal customers for payday lenders. (To learn more, see The Importance Of Your Credit Rating.)
One Step Forward, Two Steps Back
In most cases, a payday loan is not an attractive option for short-term financial problems. Exorbitant interest charges, sub-par lender reliability, small loan size, future dependency and the possible negative effects that borrowing from these lenders can have on your credit rating are all valid reasons