Payday Loans, a Short-Term Loan Solution
Payday loans are small-amount, short-term loans. They usually need to be paid back within two weeks or on the borrowers next payday. They are easy to apply and qualify for, making them very appealing to those in need. These loans do not need collateral and have relaxed credit requirements. To be considered for most cash advance loans, users only need a valid government ID or social security card, proof of employment and an active bank account. Many of these loan companies offer 24-hour service and loan applications can be as quick as five minutes.
While this may sound like a great and viable option for those in need of some extra cash, users should proceed with caution. These loans often come with interest rates as high as 400%. Users often have to roll-over the loans due to the inability to pay on time and incur high fees, putting them into a debt cycle they can’t get out of. While these loans are quite expensive, they do not help the borrower build credit. Also, borrowers are forced to give the loan company access to withdraw money directly from their bank accounts.
Payday loans are considered to be predatory. They are primarily located in communities with high poverty levels. Several states including Arizona, Arkansas, Georgia, New Mexico, North Carolina and the District of Columbia have completely banned them because of this. Other states have very specific legislation on cash advance loans to help prevent these companies from taking advantage of their patrons.
What are the scenarios where a payday loan can be helpful?
There are some situations where this type of loan can be helpful. Short-term problems such as a home need or medical emergency for example. A home need like a stove going out between paychecks could be detrimental to a family if not replaced right away. This is where a cash advance loan could help bridge the gap between paychecks and provide assistance. However, the borrower should try to seek out other alternatives first. A personal loan from a family or friend, for instance, could save someone a good amount of money and have fewer repercussions.
Ultimately, these loans should only be used as a last resort. Before taking out a high-interest loan, borrowers should make sure they understand all the pros and cons. They should also take heed to make sure they know everything about their repayment date and amount. This will prevent users from being stuck with hefty fees for late repayment or hidden charges.