Loans Before The Paycheck – A Good Idea or a Risky Trap
A payday loan allows the person to get a cash advance on their paycheck when they are short on funds. Payday loans are short term loans with extremely high interest rates. Most payday loans only last for a few weeks, usually around two. Because these loans have a short repayment term and a very high cost used to borrow them, it’s very easy to work yourself into high debt if you continuously rely on payday loans. There is also a high risk of a negative impact to your credit score if you fail to repay your loans on time. So, paycheck loans online should be used with caution and only in times of true need.
The requirements for taking out a payday loan are simple. There are several payday loan stores in most cities and some pawn shops can even help you. Some payday loans are available through internet and phone services. All the borrower needs is a steady source of income (i.e. be employed), a bank account that is in good standing, and ID such as a driver’s license. The borrower writes a personal check to the business offering a payday loan for the amount they need (usually ranging from $100 to $1000 – different states have different limits) plus the amount of interest it will cost you to take out the loan.
The lender will then hang on to the check until the next repayment period or “payday”. On this payday, the borrower has to pay the finance charge in full, and either repay the loan or have the loan again for another time period. If the borrower pays the loan back in full with cash, the lender can return the borrower their untouched check they wrote at the beginning of the loan period. The borrower also has the option of allowing the lender to deposit the check as a form of repayment.
While payday loans may help out someone needing emergency cash for a bill, it can cost the borrower as much as a twenty to thirty percent finance charge – just to borrow the money for a few weeks. Another worry is that if the borrower does not have sufficient funds in their bank account to repay the lender, their check will bounce. A history of bounced checks hurts one’s credit rating and can also prevent the borrower from being able to open a bank account at a different bank in the future. In some cases, collection agencies and even legal action may face the borrower who can’t repay. If you need a payday loan, be sure you know that you will be able to repay it in good standing, to avoid getting yourself into deep debt.
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