Monday, July 24, 2017

Is It Easy to Get a Payday Loan?

It’s frightening to run out of money, and it happens to everyone. One unexpected thing after another – your car needs a new tire, your hours at work decrease, family members decide to stop over for the weekend without asking you – and suddenly you find yourself unable to pay a very necessary bill.

 

When you don’t have a savings account to dip into and your credit can’t handle the strain of a loan application, a payday loan may be the answer. Approach this idea with caution, however: although payday loans are typically quite easy to get, they aren’t so easy to get out of. Become thoroughly informed about them before taking the plunge and use them only in dire emergencies.

 

What Are They, Exactly?

 

PAYDAY LOAN SIGN

This is how they work: you write a payday loan lender a check for money you want to borrow plus the lender’s finance fees. The lender holds the check until your next payday. When payday rolls around, the lender deposits the check and the debt is paid.

 

What do You Need to Get One? Is There a Credit Check?

 

Payday loan lenders do not check your credit, per the Consumer Federation of America (paydayloaninfo.org). You need to have a job with steady income – most lenders will ask for proof of income in the form of several paycheck stubs or, if you’re self-employed, a statement from your prior year’s tax returns. Some lenders will accept a few months’ worth of bank statements showing regular deposits if you haven’t been in business long enough to have filed a tax return. Other lenders, such as Ace Cash Express, only require that you have some form of income; a retirement pension, disability benefits or alimony can qualify you for a loan.

 

You also need a bank account in good standing, meaning you can’t have a history of going into deficit. In most cases, you’ll need a checkbook from that account to provide them with a check to make the loan against.

 

The other requirements are basic: a form of identification, proof of address and a working phone number usually suffice for proving who you are and that you live in the state you’re applying for a loan in.

 

What are the Drawbacks?

 

The problems with payday loans – and there are several – are that the finance fees are typically astronomical and the payoff time is very short.

 

Per the CFA, for every $100 you borrow from a payday loan lender, you’ll have to pay a $15 to $30 finance fee; if you borrow $300, for example, the check you’ll have to write the lender will be for between $345 and $390. By comparison, the average credit card will charge you about $13.99 for a cash advance of $300 if you pay it off by the next billing cycle.

 

Most payday loans are meant to be paid off on your next payday, usually within 14 days from the date you write the check. Signature loans allow you several months to a year to repay your loan, and even if you paid a cash advance from your credit card in full by the next billing cycle, you’ll have up to 30 days to come up with the money.

 

Because of the very short amount of time given to repay the loan, many people – even those with the best of intentions – find themselves unable to make the payment in full. Now, the loan company isn’t going to freak out if you can’t pay the loan off. What they are going to do is either offer to let you pay a finance charge and hold the check for another pay period, or they’re going to encourage you to let them deposit the check and then immediately write them another so they can provide you with another loan. This can turn into a vicious cycle of essentially borrowing the same money over and over, while continually paying new finance charges for it.

 

The worst-case scenario is that you can’t pay off the loan and you don’t take any of the options to refinance. You won’t just have a defaulted loan on your credit. The lender can take you to court for writing a bad check, which, depending on the outcome, can leave you with a criminal record, fines and even jail time. Horrific results when all you were trying to do was take care of a bill.

 

Is it Worth it to Get a Payday Loan?

 

You should only get a payday loan if you absolutely have no other options and you’re positive you can pay it off with your next paycheck. Don’t get a payday loan for frivolous reasons. It isn’t worth risking getting caught up in a refinancing loop just so you can spend the weekend with friends or treat yourself to a day of shopping at the mall. In other words, if the reason isn’t something you would normally pay for yourself out of an ordinary paycheck, don’t get the payday loan.

 

But if you’ve got a surprise, time-sensitive situation that you could take care of yourself if just had your paycheck right now, payday loans can offer the solution. In the end, the choice is yours. Just be careful and know the risks going in.