If you are in need of cash quickly then you might be tempted to borrow from one of the payday lenders that you can find online. If you believe the ads that they have on their sites, then all you can get from it are benefits. But don’t be too hasty in signing up for any of their loans. There are a few things that you ought to know about this form of borrowing.
Payday Loans Explained
It would be better if we are going to explain what payday loans are in the first place. You might have used it in the past, but you might not have fully understood what it entails. Payday loans are short term loans which are taken against your paycheck. This is the reason why it is also called a cash advance loan by some people.
Payday lenders compare their product to a financial taxi. A taxi is excellent for short trips and is a lot more convenient. Payday loans are supposed to be better when it comes to borrowing for short periods and for limited amounts.
Payday Loan Advantages
What are the good things about payday loans? The fact that there are 12 million Americans who uses payday loans yearly is a testament to the fact that there are some good things that can be derived from this type of loan. One of the major reasons why people resort to borrowing from cash advance lender is the speed of processing. You can expect to get your money within the same that you applied for a payday loan. No other financial product has the same kind of speed of processing.
A payday loan also does not require any credit check. A person who cannot qualify for their loans would have no problems in getting an approval for a payday loan. Then there is also the absence for any need for documentation. With all those qualities, it really isn’t surprising that millions of people are using payday loans on a yearly basis.
Beware of Same Day Payday Loans
Though same day payday loans seem to be filled with so many benefits, you have to be careful in using it. The Federal Trade Commission has issued some warnings about the practices of these short term lenders.
There are several cases where the FTC has sued online payday lenders. The most common reason why the government agency sued the lenders is because they have lied about the cost of their products. Some lenders have also required their borrowers to authorise them to take money from their bank accounts, or they have threatened to sue the borrowers because of non-payment.
Sometimes the payday lenders would ask the borrowers to provide details of their personal bank accounts. They would say that it is part of the requirements for the loan application to provide such information. They claim that they would be using the accounts to deposit the borrowed amount and to withdraw the payments automatically. They would say that they would only take out the amount borrowed and a one-time fee, which is the interest for the loan. Instead of withdrawing from the account only once, the lenders would withdraw multiple times and each time they do so they would charge a fee. That would increase the total amount paid by the borrower.
On top of the misleading loan terms, some lenders would threaten the borrowers if they are unable to pay. Their practices are way beyond what is allowed by the law when it comes to debt collection.
Risks of Giving Personal Information
There is another type of risk connected with payday loans. That is in giving out personal information. When you are filling out forms for payday loan applications, you are about to provide some very sensitive personal information. You are at risk there already because that sort of information can be sold to others. Your personal information can be sold to those who would try to sell you something, those who would charge you more than what you actually bought and those who would charge you for something that you didn’t buy.
Even if you did not submit the form, it is enough for you to fill out the form to have your personal information compromised. There are programs that can be used to capture every keystroke that you make.
Beware of Loan Aggregators
There is another player in the payday market which you should beware of. These are the loan aggregators. Loan aggregators are more like middlemen between the lenders and the borrowers. They get information from borrowers and they take in applications, they forward the information that they have gathered to the actual lenders who will be the ones to give out the money. The problem with these middlemen is that most of the time, the borrowers are unaware that they are not dealing with the actual lenders. Loan aggregators can also sell your personal information.
Dangers of Payday Loans
Some states have prohibited the use of payday loans. It has also been made illegal for payday lenders to lend to members of the armed forces and their families. The annual percentage rate or the APR for these types of loans could be as high as 400%! That alone would indicate why payday loans can be dangerous.
The ideal situation for a payday loan is for it to be repaid quickly, preferably when the borrower receives his or her next paycheck. In cases like that, then the loan would have served its purposes. The problem is that it is more common for a borrower to miss out on the first payment. In cases like that, the lender gives out the option of rolling over the loan. That means that the term of the loan would be extended. That might not sound so bad, but that also means that there would be additional interest because of the extended period. With the kind of APR that the loan is charging, it is easy to see how it can become so expensive in the long run.
The lenders are also thriving on the practice of borrowers to keep on using payday loans. They don’t say it, and they might advertise against the idea of multiple transactions, but they really earn their money from lenders who keep on borrowing from them.
Considering Your Options
Using a payday loan is really not a recommended financial move by experts. There are many other financial products which are cheaper which can be more beneficial. But if you are really set on using a cash advance loan, then there are a few things that you should keep in mind so you can pick the right loan and lender to use. You should also consider the options that you have other than using a very expensive loan.
One of the most important qualities that you should be looking for in a lender is one that is offering the lowest APR or annual percentage rate. One of the most common mistakes of borrowers is that they do not check the APR of the loan that they are signing up for. That’s why they end up paying more than what they have intended.
Credit Union Loans
Before you resort to payday lenders, try borrowing from a credit union first. The terms that you will be getting from a credit union will be a lot better. You should also consider getting a cash advance from your credit card. It might be expensive, but it isn’t as expensive as a payday loan.
Get in Touch with Your Creditors
If the reason why you are planning in taking out a payday loan is because you need to pay off some bills and creditors, then you can try something else. Try getting in touch with your creditors and ask for an extension. Normally, they would be willing to give some extension, provided that it is within a reasonable amount of time and that you contact them ahead of the due date.
Work within a Budget
Do yourself a favour and start formulating and living within a realistic budget. A good budget is one that would include all of your sources of income, but more importantly it would record your expenses in a realistic manner. You should learn to stick to your budget once you have created one. When you learn to do that, you would no longer have any need to use a payday loan.
Is it Worth it Using Same Day Payday Loans?
With all the information that we have gone though, is it worth using same day payday loans? Like any other financial product, a payday loan can be beneficial, if it used in the right way. The problem only starts when borrowers use it for purposes that it has not been meant for. If you decide that you will be taking out a cash advance loan, then you better make sure that you are clear on the purpose of the loan and what you will be using it for.