You see advertisements for Payday Loans also referred to as short-term solutions to money problems everywhere – on city buses, billboards, in newspapers and online. While getting a small loan like this is a fast and easy fix to a financial problem, the question many consumers ask is “Is it worth it?” There is little evidence to dispute the fact that Payday Loans are convenient and that you can become approved quickly and have the money put into your bank account the same day that you apply for the loan. But are they the deal of a lifetime? What’s the catch?
Payday Loans are really quite easy to understand. Usually, you will only need to log onto the Internet, locate a lender, provide some basic information, such as proof of employment, your monthly earnings, proof you are over 18 years old and your active bank account information. Upon approval, the money is simply transferred to your bank account and you are done.
The ‘catch’ associated with payday loans is the high rate of interest that is often attached to these loans and the fact that they must be paid back quickly. Most typically, the interest charged on this type of loan can range from 10 to 25%. For example, if you borrow $100, you will be required to pay back $125 on a loan that has a 25% interest rate attached to it. The reason that such high interest rates are charged on these loans is due to the fact that most of these lenders do not do any type of credit check and therefore must be able to absorb a high level of non-payments from borrowers. Quite often, those consumers that take out payday loans have poor credit histories, so the risk is high that the lender will not get the money back, or at least, not on time.
Payday Loans are great for those times you are facing an emergency and you find yourself short of cash. Let’s say that your car breaks down unexpectedly and you are told that it will cost you $300 to have it repaired. You need your car to be working because it is your only means of getting to and from work, and the break-down could not have occurred at a worse time because you are flat broke until your next payday rolls around. In this case, a short-term loan can be a godsend, as you will receive the money quickly and very easily, provided that you qualify. With payday loans you have to be sure to pay back the loan, plus the interest attached, in the specified period of time. If you fail to do so, you will be charged penalty fees.