What are payday loans? - Use payday loans wisely

These are short term loans that folks can use for bridge financing. You need some cash but Payday is a week or two away. So true to their name, Payday loans terms are 1 week to 1 month depending on the laws where you live and work. The concept is that you get the loan now to take care of whatever short term financial need you have and then you pay it off when Payday arrives.

The image of a typical Payday loans customer is some one with a low income scrimping to get by. Interestingly enough the customers are having financial challenges but they are not poor. The demographic for this product is customers that have an annual income of $50,000 +. With incomes that high you would think that these folks would have access to credit to get themselves through any tight spots.

What has happened?

With the recession there has been a tightening of credit. Especially lines of credit and credit card limits have been rolled back. Folks cannot get new credit. Folks cannot renegotiate the mortgages on their house because housing values have dropped. Folks have to spend what they make or less each month. A lot of folks have their cash flow booked to the maximum.

Bills become due or financial anomalies occur. The car breaks down or some other emergency happens that requires instant payment. Another scenario may be that you have set up pre-authorized debits to your checking account. They are due but payday is not due until a few days or a week after they will be paid automatically. Your accounts will not have enough money in the short term to cover your expenses.

What can You do?

You know that this situation is going to cost you money. You are already hurting financially so you want to minimize the pain. So let’s look at the alternatives.

• You can overdraw your bank account overdraft. You know the bank is then going to penalize you. Any checks will be identified as NSF and all pre-authorized debits will be identified as NSF. An NSF check can cost you $45 just at your bank and then any retailer is going to bill you back for their losses as well. If you rack up 2 or 3 or these, it gets very expensive. Even one can cost you $100 total.
• You can borrow from your credit card and take it over its maximum balance. In this case credit card companies are charging $40 for going over credit limits even if it is just the monthly interest charge that pushes your account over the credit limit.
• You can write a bad check and make it right when Payday arrives. You incur the cost of the bad check both from the bank and from the retailer. You have committed fraud in most jurisdictions. And finally you will ruin your credit score or credit rating.
• You can take out a Payday loan.

How does a Payday Loan work?

The best Payday loan companies are on line. You go to their website and fill out the application form from your computer or your hand held device. They will tell you how much you can borrow. If you choose to move forward with the application, the best ones will approve or reject your application within 10 seconds. The money will be in your account the next business morning. You pay a fee for the transaction and/or you pay a fixed fee per $100 borrowed.

Why choose the Payday Loan option?

The two reasons you may choose this option is that it may be cheaper than the other options and it will save you time. Weigh out the costs of NSF charges or overdraft fees and interest and compare it to the amount you will pay the Payday loan company. In a lot of cases you save money by using the Payday loan option. On top of that your problem can be solved in 10 seconds after you have filled out the application. You are then free to go to work to take care of business worry free.

Conclusion

One challenge in this scenario is that you must pay the loan back when you get paid. The payment is due on your Payday and if the money is not there, Payday loan companies are diligent about getting their money. If they were not, they have trouble staying in business. You face that scenario or another scenario where they will have you make a partial payment and then rollover your loan. They apply all of the fees again to the larger balance owed. They will do this over and over again if you let them. The loan can cost you double and triple the amount of the principal very quickly. This is illegal in most jurisdictions and is at the very least unethical. It is just a bad idea for the borrower and you should avoid doing this. Many Payday loan companies offer this but it is an option you should refuse. The right way to use payday loans is to borrow the money to minimize your costs in a tight financial situation that is short term. Then pay the loan on time and in full. Watch our payday loans video to find out more.

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