How Payday Loans Work: Are they worth the cost?

payday loans pros and cons

payday loans pros and consPayday loans and Payday Advances are high interest, short term loans based upon your income and checking account. These loans are also referred to as payroll advance, deferred deposits, cash advance or post-dated check loan.

The lender will advance the borrower loan funds and the borrower will write a personal check drawn on their bank account for the amount of the loan, plus the fees. Your check will be automatically deposited at a later date, usually 2 to 4 weeks from the date of the loan or your next pay date. Some lenders will allow you to extend repayment of the loan for an additional fee.

Loan Amounts
A Payday loan may be from $100 to $1,500, it varies from state to state. The tremendous growth of payday loans has caused many states to regulate the industry. Specific laws now regulate the payday loan industry.

These laws define permissible lending terms and rates and some states even regulate the amount a payday lender can lend and how much they can charge for the loan. Other states have totally banned payday lending. Some lenders have gotten around the laws by partnering with banks based in other states, such as Delaware.

How does it work
Let’s say you need to borrow $255.00. You will write a post-dated check in the amount of $300.00 made payable to the lender. This amount includes the finance fee. The lender will advance you $255.00 for a typical term of 14 days. When that term is expired, the lender will deposit the $300.00 post-dated check into your account and the loan will be repaid.

The lender may offer the borrower an extension if you cannot repay the loan in full but additional fees will be added to the original amount of the loan. It is not cheap. If at all possible, get a payroll advance directly from your bank. The fees are usually a lot cheaper.

Loan Qualifications
Most payday lenders require you to have a verifiable form of income such as employment, social security benefits or retirement benefits. You will also need a bank account, in good standing, along with copies of your most recent bank statement. Some may even require you to have direct deposit.

No credit check is required. However, most payday lenders run your social security number through a consumer reporting agency called Teletrack. Teletrack gathers records from businesses across the country who cater to non-traditional credit consumers, they keep records of past and present payday loans, among other types of information.

They are a consumer reporting agency and subject to the same FCRA Rules as the major credit reporting agencies. You are entitled to a free report if you have been denied based upon information contained your report. Many States limit the number of payday loans you can have at one time. Teletrack will give payday lenders information on your borrowing habits.

Fees and Terms
The fees are expensive, there is no getting around this fact. Annual Percentage Rates are typically around 400%. A loan of $200 for two weeks will cost you approximately $35.00. The average payday loan is fourteen (14) days; however, in some instances it may be as long as thirty (30) days if you are paid on a monthly basis.

The Pros
Payday loans are quick and easy to get if you do not have other options. It may come in handy during times of emergency. They can be attractive to borrowers who have less than perfect credit and cannot qualify for bank loans. Payday loans can be useful for unexpected expenses such as car repair or medical bill. It is not a supplement to your regular income. Borrowers who do not have access to credit card cash advances or savings accounts may find payday loans a benefit. But these loans should be used sparingly and only in case of emergencies.

The Cons
It is imperative that the payday loan be repaid as soon as possible, without any extensions. If you cannot pay the loan on time you will be subject to even more fees. The annual percentage rate (APR) on a payday loan averages about 400%. If you are living paycheck-to-paycheck, as many consumers are, you may get stuck in a cycle of getting payday loans. Avoid this cycle and use a payday loan only in the case of extreme emergency. Get up to $550 Next Business Day!

 

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