When you're already strapped for cash, the idea of taking out a loan – and in the process, incurring another bill that you'll have to pay back – can seem counterintuitive. It doesn't help that there are a myriad of negative myths that surround the fastest and easiest short term loan option – payday loans. These quick cash loans are regularly characterized as overly expensive, difficult to repay, and even predatory. That may make cash loans sound unappealing, but there are times when a payday loan is really the best option. Take a look at more info on why you shouldn't be afraid of taking out a payday loan when you're in need of fast cash.
You'll Pay More in Late Fees and Overdrafts
Usually, people consider a payday loan when they've had an unexpected expense come up that leaves them short on money for bills and living expenses, or when they simply didn't make as much money as they needed for a short time – such as when your paycheck is light because you lost work during an illness. Think about your options in that position. You can pay your bills late. You can overdraft your bank account. Or, you can take out a loan and pay your bills and living expenses.
Consider these options carefully. Late fees can mount up quickly. If you rent your home, your landlord can start charging late fees in as little as three days after the rent is due, and in some states, they can charge almost any amount they want. Utility companies also charge late fees for late payments, and if you have to wait so long that your service is disconnected, you'll also pay a reconnection fee. And that's not even taking into account your other bills and credit card payments, or the fact that late payments can damage your credit, which can cost you in the form of higher interest rates for years.
Overdraft fees are even worse. If you try to pay a bill and don't have enough money in the bank to cover it, you'll find yourself hit with one of these ever-increasing fees. The average overdraft fee is $30. Once your account is in overdraft, many banks will also charge you for having a negative balance – you could be charged every single day until you resolve the negative balance. Even overdrawing your account at the ATM by as little as $20 could result in a fee that equals out to a 3520% APR. The average APR of a payday loan is much lower – between 291% and 521%.
Flat Fees Are Easier to Handle
Beyond noting that the much-maligned APR of a payday loan is considerably lower than that of a bank overdraft, it's not a good idea to get too hung up on the APR of a payday loan. Cash loan APRs are often compared unfavorably to credit card APRs, but as it turns out, APR is not the best way to evaluate payday loan fees.
The reason for this is simple. When a bank extends you a line of credit in the form of a credit card, or when they give you a home or car loan, you are offered much lower APR. However, the bank knows that you'll most likely be paying the interest on that credit card or loan for years to come. There's no need for them to collect a lot of money up front, because they have plenty of time to recoup the cost of lending the money and turn a profit on your credit card or loan.
Payday loans, on the other hand, are short term. Most are due in two weeks, some are extended for as long as 30 days. Then you pay it off and never worry about it again. Payday loan lenders only have one chance to recoup their costs and make a profit, so they charge a flat fee. The average payday loan flat fee is perfectly reasonable when viewed as the one-time fee that it is – it just doesn't translate well to an APR. What's important for you is that it's just one bill; you pay it off in one payment and it's over. That's far less onerous than a credit card or loan payment that you have to deal with every month.
Responsible Loan Companies Look for Qualified Borrowers
It's not uncommon to hear the charge levied that payday loan companies target people who can't afford the loans. While some disreputable companies may do this, most don't. After all, there's not much money to be made in selling loans to people who can't afford to repay them.
The truth is, responsible lenders ask to see pay stubs – and even call your employer – to verify that you have enough income to pay back the loan. They also check with your bank to ensure that you have a valid and active account with regular deposits. If you're approved for a payday loan, it's because you are financially solvent enough to afford one.
If you're in a short-term cash crunch, you shouldn't be afraid to apply for a short-term loan. It may be the best way and least expensive way to pay your expenses and get back to normal.Share