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Payday Loans
Payday loans is a way to get quick cash through a short-term personal loans secured by a person’s employment earnings. The primary qualification, therefore, is having a job, The practice of making payday loans has been characterized as “predatory” by various critics and government agencies, and has been very much in the news in the past 18 months.
The fact is, the more options there are for you to manage and control your finances, the better. This sort of high-interest loan, of course, should be considered only as a last resort if you have other means of obtaining short-term cash. For example, it is almost always less costly interest-wise to take a valuable time to a pawn shop, where even that high interest rate is dwarfed by the payday loans’ (annualized) interest rates of 380 to 750 percent and more.
However, proponents in the credit industry believe that payday loans are a viable option for certain consumers with bad credit. Many other options do exist for most people, and the majority of financial planners and credit counselors would suggest exploring all of the alternatives before taking out a payday loan.
Some of these alternative means are the aforementioned pawn shops, as well as credit card advances, paycheck advances from employers, small consumer loans, bank overdraft plans and, of course, unsecured loans from friends and family. Of course, many people who are utilizing payday loans have already depleted their other alternatives, and the only thing they have going for them are their jobs.
Apples and oranges
When it comes to the interest rates on payday loans, they can be tricky to figure out because of the ability to extend the loans (in some, but not all, states), different fees being charged and so forth. Also, in addition to state regulation, there are Federal laws about the practice, too, so interest, fees and charges differ from place to place. However, a standard, two-week payday loan will cost between $10 and $30 per hundred dollars borrowed, with the national average hovering around $22-25 for the last full year with complete figures, 2006.
Frankly, payday lenders do not compare their interest rates to the mainstream loan offerings from such lenders as banks, finance companies or credit cards. They compare their rates and fees, instead, to the charges that would be incurred – overdraft fees, late payment charges and penalties – if a consumer were incapable of obtaining any credit for his emergency situation.
When looked at in similar situations, apples and apples instead of apples and oranges, the payday loans look somewhat more reasonable. For example, a $100 payday advance with a $20 fee yields a 520% APR (Annual Percentage Rate), which sounds extreme even compared to the 19% Visa card that a fair-to-middling credit score will get you.
However, the average $100 bounced check will cost you an average of $48 in fees from the major banks, or an APR of 1,251%. If you are late on paying your $100 credit card balance, the $26 late fee amounts to 678% APR. There are many ways that cash-strapped consumers can overpay on interest charges.
Planning prevents problems
The best remedy to high-interest, short-term payday loans is having, and following, a tight household budget. There are many challenges to doing so in this day and age, and it is a constant battle for many people to keep hearth and home together.
There are many benefits to devising and enforcing a budget, and starting a savings plan, too. Getting out of debt is also something you want to do as quickly as possible, and the Debt Management and Debt Consolidation articles can be of great help to you on that score.
If you are habitually taking out payday loans and other short-term, high-interest loans, you may need to consult a financial planner or credit counselor to help you learn some new habits. There are free service available most everywhere, even on the Internet. Payday loans have a place in your financial life, although a very limited one. You should use them only as a last resort, and bring some insight and discipline to your finances so you don’t have to resort to them at all.
Topics: Payday Loans |
