Payday Loans: Boon or Bane?

All working people face unexpected difficulty once in a while. If your salary barely covers your exact financial needs every payday, any unplanned expenses can cripple and leave you in deep financial distress. This happens when financial emergencies occur like: a busted kitchen sink, a house heater needing repair, a leaking pipe, and other minor accidents at home that has to be attended to immediately.

Payday loans are one option that you can avail of when these situations occur. In times of extreme financial need, these types of loans can be resorted to as a stop-gap measure to help tide you over the hard times. What then are payday loans? These are otherwise known as cash advance loan, which covers cash emergencies in between paydays. The requirements are basically simple, and availment is quick. However, there are things that you need to know before getting a payday loan, to wit:

1. These loans have higher APR's (Annual Percentage Rate) than regular bank loans. The term is short - the next payday, or roughly around two weeks. Hence, you should not borrow what you cannot comfortably afford to pay the next pay day. Most lenders charge 15% interest for two (2) weeks. Hence, if you borrow $300, you need to pay $345 in two (2) weeks. The effective interest rate of that loan spirals to around 391% per annum, exclusive still of other financing charges. If you are unable to pay at due date, you will be charged an additional $45 plus financing fees for rolling over the loan.

The payday loans have a short maturing period and would be quite expensive if not paid on time. Interest rates are going to shoot up in such levels that paying would become untenable at some future time. Hence, you should only avail of these loans in times of emergencies and in an amount that you can well afford to pay the next payday.

2. The requirement for this loan is quite simple. The payday lender would require you to submit a proof of income, pay stubs, and a valid identification card with photo. You have to submit an application for loan request that would state the amount that you want to borrow, plus interest fees and other financing charges. The payday lender would furnish you a copy of their legal documents that you need to sign. The terms of the loan agreement will be stated which includes: the loan amount, interest rate and financing charges, loan maturity, roll-over fees, among others. You need to issue a postdated check (PDC) to the lender to cover the payment of the loan on maturity date. After all documentation is signed and receipt of the PDC by the lender, cash is given to the borrower corresponding to the amount applied for.

3. You should always consider that payday loans are not modes of regular personal financing. These types of loans can be quite expensive if not paid on time. The rollover cost leads to an upward spiral that can make payment untenable. One thing to remember is that, in payday loans the lender would exert all legal means to exact payment if the PDC you issued bounced on due date. You may have to shell out the cash to fund the bounced check to avoid costly litigation battles later on.

Where to find payday loan lenders?

You can find reputable lenders in various states. Most regular lenders offer payday loans in their pool of financing services. You can search these payday loan lenders from your state and talk to them personally as regards their financing fees and charges. Most states require that lenders give this information to prospective borrowers. You can check on the credibility of these lenders through various government agencies for any complaints regarding fraud or scamming.

There are many materials online that can help you understand about payday loans. There are also some lending institutions that process loan requests online. It is suggested however, that you go into online forums to better understand the mechanics of payday loans. Going to said forums would enable you to find a reputable lender that you can do business with, when times get rough!

Consolacion S. Miravite is a Certified Public Accountant, Real Estate Broker, Lead Farmer, Trader, Accounting Professor, Free-Lance Writer and Blogger. She has written for several companies, institutions and website owners on topics ranging from - Finance, Accountancy, Computers, e-Commerce, Online marketing, crafts, relationships, and others.