Jan 21st, 2015 Loans
Payday loans are small loans that are provided to customers with a fee. These loans are usually available at loan stores and banks. These loans are given to customers during emergencies and the customer doesn’t have to go through a credit check to receive a payday loan.
Even though a no credit check might sound alluring for customers with a low credit score, it isn’t advisable to take a payday loan as these loans charge a high fee. Example: A loan of $200 can have a fee of $50. There are instances where payday loans interest rates rise as high as 400%. It’s likely to be more than that, if customer delays in paying a payday loan.
Payday loan at a loan store: Customer has to apply for a moderate amount of loan for the period required. This could be anywhere between 3 days to 4 weeks and more. The customer should write a post dated check for the total amount which includes the loan amount and fee. The postdated check would be written by the customer on the day the payday loan is agreed for, however the financial institution will not issue this check unless the customers agrees for it. As the customer who takes a pay day loan would inform the financial institute when to issue the check based on the availability of funds in their account. The postdated check acts as a guarantee for the payday loan.
Payday loans got the name payday, as most of the customers who utilize this loan take it for a short period of time and pay it on their payday (salary day). If the customer is unable to pay the loan on the due date, the fee keeps increasing on it. Therefore customer’s who delay paying payday loans pay high fees to the lenders.
Payday loan at banks: Banks also provide customers with payday loans, as they can earn money on the fees accumulated on such loans. Such loans with banks are also taken due to emergencies for a small amount and a short term period. The fees charged by banks are similar to loan stores. In case of certain banks the name of payday loans might appear differently but its features will be the same.
The customer can apply for a payday loan by contacting the bank; if customer and bank are in agreement then bank would debit the customers checking or savings account for the loan amount and the fee on the due date. If the customer doesn’t have funds to pay on the due day, there is a possibility that bank takes the amount from overdraft facility and charge interest on it. Also when banks give a payday loan, they deduct their payment before the customer’s mortgage or loans payments. For customers with tight financial situation it can be difficult to deal with a payday loan taken from a bank. Bank also charges high fees for payday loans, in cases where customer is unable to pay the amount the fee would be multiplied and added to the loan amount.
Hence this can lead to a situation, where a customer pays more than the amount borrowed in the form of fees. Therefore while taking payday loans customers should weigh its pros and cons, only if it’s an emergency where there are sure to pay back the amount as agreed it’s sensible to take a payday loan account. Because delaying the payment of payday loan can lead to an increase interest rate of 1000% too. It’s always sensible to avoid such situations.
Financial difficulties: Customers tend to take a payday loan when they are going through financial difficulties. It’s more likely for people without income to be attracted to these offers as they usually require a small amount to meet their expenses. Also if the customer has financial difficulties, they wish to pay off their payments quickly. As payday loans are easily available they opt for the same.
In such situations, it’s advisable that customer avoids a payday loan if they are not sure of paying it. As the fees on payday loan increases and it can be uneasy for them to deal with the high fees accumulated on it. Customer can opt for a job. Also customers in these situations can borrow from friends and family. If the customer has a good credit score, then it’s more sensible to take an unsecured loan or other small loans, as the interest compared would be lower than the pay day loans fees. However it’s advisable to do the same when customer is sure of paying back the funds, as failure to pay the amount can affect the credit score of the customers.
Low Credit Score: If a customer has a low credit score, they might opt for a payday loan as this wouldn’t require a credit check. So the customer feels better to get the funds this way, than through a small loan via bank. However, a customer with a low credit score might already have other payments to deal with. Hence in such situations, the customer must ensure that their payments are managed wisely, wherein they rent and other main payments should be made including the payday loan account. If customers fails to pay the payday loan situation can worsen even more. Additional part time jobs can be opted in such cases. It’s always advisable for customers to maintain a good credit score.
Emergency situations: In situations where customer run’s out of their salaries, is not able to access funds in account as cards are lost and bank is closed. There can be many such situations including car breakdown etc then customer might opt for payday loan. In such situations customers can try and check the overdraft facility offered by banks as it can be much lesser than the fee on accumulated on payday loan. If customers save some emergency cash in their accounts, it would be much easier to face such issues.
Apart from the above mentioned reasons there can be several other reasons why customer opts for payday loans, Whatever the reason and situations might be its always sensible for customers to use these loans only in case of emergencies provided they are sure to pay of the amount as per the decided due date. If customers are okay to pay the high fees for the late payments, then it’s okay to opt for a payday loan too.