Living from paycheck to paycheck has become an unfortunate reality for many households. Medical emergencies, automobile repairs and other unexpected bills can be completely devastating to a home that is already barely making ends meet. With lenders now requiring impeccable credit standards, many borrowers are looking into payday loans or check advances for a quick fix. While this can be a good solution, no financial decision should be made without contemplation and research.
A payday loan, or a check advance, is a short-term unsecured loan, generally for an amount equal to the borrower’s next paycheck. Payday loan brokers and check advance websites have proliferated in recent years and significantly streamlined the process. A website can record a borrower’s bank details and, after income verification, wire the borrowed amount directly into the borrower’s bank account in as little as an hour. Most payday loan companies do not require a credit check of any kind. After a specified period of time, sometimes as long as 60 or 90 days, the amount and any interest fees are automatically deducted from the borrower’s account.
Payday loans are beneficial to cover minor, temporary shortfalls in finances. While a payday loan may charge interest fees, those fees may actually be less than any late fees, penalty charges, or overdraft fees that might accrue without it, to say nothing of the ramifications of getting sent to collections. In addition, a payday loan may often be the only choice for a borrower with poor credit or no assets to borrow against.
Going through a payday loan broker rather than directly to a payday loan company can be in the borrower’s best interest, as the broker will search for the best rates and the best terms. Interest rates can be the determining factor on whether or not a payday loan is the most ideal choice to make. A borrower should not take out a loan if it leaves them in a worse financial situation than before.
There are physical payday loan locations that a borrower can visit as an alternative to online companies. At these locations, the borrower will generally walk out with the funds, and leave behind a postdated check for the total amount due. The payday loan company will deposit this check on the specified date, and the transaction will be complete. The downside to using a physical payday loan location is that due to overhead and a captive audience, the interest fees are generally higher than what is available through an online company.
A payday loan is a valuable tool when used properly, but it does not apply to all situations. If paying back the payday loan will lead to the same shortfall of funds that it was originally necessary for then it becomes a delay tactic rather than a solution. Payday loans and check advances are an excellent way to cover unforeseen events in the most responsible manner possible, but they cannot resolve a financial situation that is inherently unstable. The best way for a borrower to manage their financial situation is to be aware of their options, use the tools at hand, and educate themselves on proper budgeting and planning.