An emergency has come up, and you need money to take care of it right now. Unfortunately, you don’t get paid until next week. A payday loan could help you cover the expense. But is it worth it? Can you get a payday loan safely and responsibly? Here’s what you need to know about them.
What Are Payday Loans?
Also called short term loans, payday loans allow you to take out a small amount of money for a short amount of time. You can borrow, say, $100, $500, or $1,000 to cover your expenses, which is then typically due when you receive your next paycheck.
Since these loans are paid back quickly, rather than an annual interest rate, you’ll have a finance fee—say, $15 for every $100 you borrow. So if you take out $500, then at the beginning of your pay period, you’ll owe a total of $575. Depending on the lender, you can either write a post-dated check for the full amount at the time of borrowing, or have the money taken directly out of your bank account once you receive it.
Hazards of Payday Loans
Payday loans can help you get cash quickly when you need it. The problem is unless you’re sure you can pay it all back right away, you can accrue a lot more debt, very quickly. Many people, when taking out short term loans, end up taking out another the following week, in order to cover the first loan. Which means at the end of their next period, they’ll owe even more.
This can lead to a cycle of continuing to take out more and more money every pay period—at which point, short term loans can easily turn into long term debt. 70% of payday loan borrowers will take out another at some point, and 20% end up taking out ten or more payday loans in succession. The finance fees continue to roll over each pay period until they owe many times more than what you initially borrowed.
Rather than get a payday loan, other options are often safer and less costly. For instance, you might be able to turn to your credit card company. They often also offer short term loans, at a much lower interest rate.
You may also be able to get a cash advance on your card, up to a certain amount. The interest rate will likely be higher than your regular credit card rate, but still lower than what you’d pay for a payday loan.
There may be other ways to get the money as well. Talk to a financial advisor and see what options are available to someone in your situation.
If you’re going to take out a payday loan, look at the lender carefully first. Consider all of your options, know what your obligations are, and be certain that you can pay it back in full with your next paycheck. Better Times Financial has resources for the safest and most reliable payday loan options. Contact us to learn more.