Guide on Payday Loan and Does it Right for You?
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There are a lot of negative comments on payday loan because it is considered a very risky loan. So you are advised to make sure you understand the costs and risks of a payday loan before going for it. Well, this page will gives you a quick overview on how a payday loan work, its costs, benefits and risks.
PS: I also added some question for you at the end of every section to check whether the payday loan is right for you if you are planning to go for it shortly.
How Payday loan or Cash Advance Works?
First, let’s take a look at how payday loan works. The common range of the money you can borrow is around $100 - $600. You will borrow a certain amount of money from the lender with a term range from 7 -16 days. Lender will hold a post-dated check from you or have the rights to electronic access your bank account. So on the next pay day, the lender will redeem the check or access your account to get back their money included the interest. In most cases, it is very convenience and easy the whole process to get the loan.
Question to ask yourself :
Am I sure I can payback the loan on the next payday?
Am I going to get into trouble if your check is bounced back?
Cost of Payday loan?
Every loan does have its own cost or interest rate and you must know before you pick 1 for yourself. The Payday loan annual interest rate may range from 500% to 1300%. Yes, the interest is quite HIGH!! For example, you borrow $100 of cash advance, after 16 days, you must payback the $100 and also the finance charge or interest charge of $25. Total will be $125. This will depend on how much money you borrow.
Question to ask yourself :
Can I afford the high interest rate?
Am I sure I can payback the loan on the next payday?
Payday loan Cost Comparison
Well, I manage to get a comparison chart between the payday loans and other alternatives loan which you can get the chart in pdf format over here
Question to ask yourself :
Can other loans help me?
Maybe I should wait for other loans?
Benefit of Payday loan
Although everyone in the market gives some kind of negative comments on payday loan. However, in certain condition, payday loan is your choice because of its benefits. Here are them:
- If you need some money for emergency case, payday loan can help you because in most cases the application process will only take 20-30 minutes and you can get the money very fast.
- You don’t really need to do any paper works for payday loan. All you have to do is contact them.
- Once you are approved, you will get your cash within 24 hours.
- Good news to you if you are in bad credit, payday loan doesn’t care about your credit
Question to ask yourself :
Do I need some money for any emergency case within 24 hours?
Can I wait for other loans option to get the money?
The Disadvantages of Payday loan
I can tell you that this going to be a long paragraph to explain the disadvantages of payday loan. Don’t worry I will keep it short.
- The biggest myth of payday loan is it sometimes doesn’t really help you to solve the problem at hand. If you don’t manage it well, you will get even more troubles.
- You’re paying a really high rate of interest which will boost up your expenses.
- If your check is bounced, then you may end up some bad record in your ChexSystems file. Eventually no banks are willing to work with you.
- If you can’t payback the loan on time and your case is reported to a credit-reporting agency, this could have a negative impact on your credit report.
Question to ask yourself :
Do I sure those disadvantages won’t affect me?
Conclusion and My Advice
If something emergency really happen such as accident and you really need extra money at that time, then payday loan might make sense to you. However, if possible, please consider other alternatives before using a payday loan. Actually you don’t really need the payday loan if you manage your money very well. So before any things happen, please prepare yourself for it. Here is my advice:
- Start a budget on your money.
- Build up an emergency fund or start a saving account
- Keep 1 or 2 credit card for emergency expenses
- Start up a business that bring you side income
Good luck!
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