Payday loans, also known as cash advance, are small loans usually meant to be short term loans. The main advantage of a payday loan is that most lenders do not require a credit check. This can be a welcome break for people who keep being turned down once lenders take a look at their credit report.
However payday loans can also be extremely risky if consumers are not responsible in using them. Payday loans are not for everybody.
A payday loan involves an individual writing a check to be cashed in the future for borrowing money from a lender. The check will be the amount of money borrowed plus a borrowing fee.
The payday lenders have to disclose the true amount of cost associated with taking out a payday loan. Two fees to consider are the APR and the finance fee. The finance fee is the basic charge for taking out the loan. The annual percentage rate is the amount of interest you have to pay on your balance.
There are many people who strongly advice against payday loans due to their high fees and interest rates. Typically you are charged with a high fee just to borrow money for a short while. Therefore you should seriously consider the cost of a payday loan before applying for one.
Many people have had to face declining credit and even bankruptcy due to payday loans. People are usually strapped for cash when they take out a payday loan and if their situation does not improve drastically, they will end up defaulting on payments and have to accrue high interest payments on their loan balance.
If you hold a payday loan for a long time you will be paying exorbitantly high interest rate fees. If you are not careful with your payday loan repayment you may end up paying more than 300 to 400% of the original loan amount in only one year.
If you have extremely poor credit you should seek out a family member for emergency help. But if that does not work out payday loans can help you out. However be sure to take out only a manageable amount of money which you can afford to pay back with your next paycheck.