A pay day loan works
like other loans but with access to your checking account as the collateral.
You write the check including a fee to give to the lender. Then on the
designated day the lender cashes your check. Sometimes the lender will have
electronic access to your checking instead of holding an actual check. For
instance, if you need a loan of $100, you write the check or give access to
your checking account in the amount of the $100 plus the fee.
You may have done
business with a pawn shop before and if so, you know the collateral (the item
being pawned) is what they hold. Your item, when purchased, may have been worth
$100, but you will be loaned $20. Your payback to get your item out of pawn,
will be the $20 plus about 2% interest plus 20% loan fees for 30 days. For
$24.40, you get your item back. Only 60% of pawned items are reclaimed. You may
find that a pay day loan is a better option for you.
Ask yourself the
reason you need the loan, because not all issues are appropriate for a pay day
loan. Most of the time you will just be get caught in a bind and need cash for
an emergency. Because you are vulnerable at this point, payday loans are
regulated by the state you live in and the CFSA, Community Financial Services
Association. This group's main purpose is to put caps on what states can charge
as interest on pay day loans. There are states that have no payday loans
available through walk-in stores and others who have no state caps. For the
states with no caps enforced it is even more important to know exactly what the
fees are. Make sure that you have them in writing before you sign for your
loan.
All loans come with
the burden of payback. If you find yourself getting into the habit of making
payday loans for fast cash advances, you may have a problem if you've got
several out at a time. Pay day loans are not for long term financial problems.
There are many online resources and community financial services that offer
advice and help to individuals who find themselves short of cash between
paydays.
Payday loans are made
as one loan at a time. You can often extend or "roll-over" the loan,
but an additional fee will apply. Some states will not allow more than four
roll overs on the same loan. Some critics claim that the interest rates certain
pay day loan companies are charging are not as good as credit card interest
rates when you allow your balance to carry over for long periods of time.
It has been stated by
the CFSA that it is a myth for you to think that the payday lenders are out to
make a profit on you and your circumstances. You may have every legitimate
reason to need extra money between paydays and you should make a wise decision
before you borrow money.
Alternatives that are
suggested for you are simple. Make your loan now, if you have to, and then work
on a plan for putting money away for an emergency that might arise at a later
time. Next time you are short on money to pay a bill, you might be able to
cover it with your savings instead of taking out another pay day loan. It might
take time to learn how to save money but it can be done.
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