Payday Loan: Deal or No Deal

The world we live in now is fast pace and every second keeps on changing, whether we like it or not that includes the rapidly growing need for money for us to be able to catch up with the dynamic world. Due to this urgent need for money to cover all the expenses, it gave birth to different types of loans which include the Payday loan.

Payday loans or “Paycheck advance” are small cash advances with the usual amount ranging from $ 100 to $ 500. Basically payday loan is a form of short term loan which is use to cover a borrower’s urgent need of money until next payday. It is usually on a 2 week term basis and the interest rates ranges from 390% to 900% annually.

The process of availing the payday loan is easier and uncomplicated . To be able to obtain a loan, most borrowers need only a personal identification, a personal checking account and proof of income from employment, social security benefits or disability payments.When the borrower is approved for the loan a post dated check or an authorization for automatic withdrawal from the borrower’s bank account is given to the payday lender.

For two weeks the lender holds the electronic debit authorization or check until the borrower settle the amount borrowed. The borrower can payback the money by paying the amount borrowed in exchange for the original check or by renewing the loan when he is unable to repay it.

The payday loan lenders advertises their loan as quick, easy and uncomplicated way to answer money problems and this kind of advertisement attracts a good number of crowd. Their target mostly are low income working consumer, working military personnel, people in low income communities.

Payday loans might sound easy and uncomplicated compared to its other loan counterparts but just like any other loan in the market there are known risks and disadvantages compared. For example was an incident wherein a borrower was not able to repay then whole loan in two weeks ending up rolling over or renewing the loan and paying renewal fees multiple fees.

The result was the borrowers pay much more in fees than the amount that is originally borrowed. The borrowers fall on the trap of “debt cycle” where they need to renew the loan repeatedly and pay multiple associated fees every two weeks until they can finally produce enough amount to repay the principal amount and get themselves out of the debt.

According critics that payday loan lenders took unfair advantages to the borrowers .In many instances also lenders can be aggressive in their collection practices that include threat of criminal prosecution for issuing a check with insufficient fund.

Despite of the known risk and disadvantages associated with payday loan, there are still many people who opted to borrow from the payday lenders.Therefore the financial counselors advice the people to explore some alternatives to payday loans, some cited options are credit unions, cash advances on credit cards, direct loan from family or friends, credit payment plans and many others.

Tags: No Fax Payday Loan, Easy Payday Loan, Cash Advance, Money, Payday Loan