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Understanding Payday Loans

May 14, 2008

Payday Loans are a quick and simple way to get access to money in your time of peril. But there are some things you should be alert of when receiving a payday loan.

Prior to getting a payday loan you should ask yourself a few questions….

Do I have a proper reason for receiving a payday loan? Do I have the means to get a payday loan? How much am I going to pay for getting the payday loan? How am I going to pay back my payday loan and what are the terms and conditions? What happens if I cannot payback the loan? What steps can I take in the future so I do not become dependent on payday loans.

We will look at each question one at a time.

-Do I have a proper reason for receiving a payday loan?

There are many reasons you might need a payday loan. An unexpected bill, a short term sickness, car trouble, a trip planned on short notice, family problems, and many more. These are very good reasons to get a fast, short term loan provided that you do not have a way to solve these needs in some other way. Those who are against payday loans often ask the question, “Why can’t they get a bank loan” or “Why can’t they borrow from family”. The fact is that most people who pursue a payday loan do not have the means to get a loan from a bank or other financial institution. Most of the time borrowing from family is not a choice for several reasons. If the situation(s) in the 2nd sentence of this paragraph apply to you, then you have an acceptable reason for inquiring about a payday loan.

-Do I have the means to get a payday loan?

Payday loans flourish because of “ease of application”. Payday loan requirements are not very strict and are relatively easy for a person with even the worst credit to get. Requirements vary from lender to lender, and state by state. When you apply for a payday loan you may be asked to submit the following information: -A recent paycheck stub -Proof of having an open and active checking account (You may have to provide proof of account). -A valid drivers license or other form of identification

The lender will give you any other information that you might be required to give them before receiving the payday loan.

-How much am I going to have to pay for getting the payday loan?

Payday Loan rates will differ vastly depending upon the particular lender. Rates for a payday loan will vary depending on the laws that govern the lender. For example, In Alabama the highest rate that a payday loan store can charge is 17.5%. So if you are the recipient of a payday loan in the amount of $300.00, you will be asked to pay back $352.50. Be sure to have a clear knowledge of the amount that you will be asked to pay the lender for receiving your payday loan.

-How am I going to pay back my payday loan and what are the terms?

You will generally receive your payday loan by cash, or having the lender directly deposit the loan into your checking account. The future of payday loans will consist of having a type of credit card, so the lender can loan you money by adding funds to the card. The repayment of your payday loan will normally come due in 2 weeks to 1 month from the time the loan was incurred. Lenders may change the repayment date to coincide with your pay date from your employer. You will pay back the loan and the fee by either giving the lender cash, having the lender deposit your check (if the lender required you to write a check for the amount of the loan plus the fee), or by the lender directly ACH’ing your bank account. Before you embark into any payday loan, be sure that you know the terms of the loan, and the payback requirements.

Payday Loan Cash Advance

-What happens if I am unable to pay back my loan?

Hopefully you will not have to deal with this problem, but it is essential to understand. Along with knowing the requirements of getting a payday loan, you must also know what will happen if you do not repay the loan. Repercussions of not repaying your payday loan may include a lawsuit against you (most of the time in a local small claims court), submitting your check to the local district attorney, and most of the time you will get a few phone calls from the lender trying to collect their money. Never enter into a payday loan without having clear knowledge of how you plan to pay back the loan.

-What measures can I take in the future so I do not become dependent on payday loans?

Payday loans can become addictive. They are fast, easy, and always there when you need them. Take measures to ensure that you do not fall into a rut of constantly borrowing and paying back payday loans. Budgeting, keeping better records, and saving are the 3 most important things you can do to prevent this…. along with a little self-control.

In short, payday loans can be very helpful to you in your time of need, but may also be very hurtful if you do not understand the terms of the agreement.

by Lucky Davis

Written by paydayla · Filed Under Finance, Personal Loans 

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