We’ve all seen the commercials – those payday loan places make it look really easy to get money FAST! But what’s the catch? What do the loans really involve? What are some of the benefits? What could I use instead? Well I am here to answer your queries.
Every state has their own laws on payday loans including how much can be loaned and the cost. Or if they can even be offered (Fun fact: You cannot get a payday loan in New York). In Iowa, the loan term is 31 days, the max amount is $500 and it costs $15 for the first $100 and $10 on each $100 after. The average APR on a payday loan is 400%!!
To get a payday loan, you need to give the lender either a post dated check to be cashed or they get your bank account information to automatically withdraw money on an agreed upon date. It is suggested that you only borrow as much as you KNOW you can pay back with your next paycheck. High extra late fees are added if you do not pay it back on time. If you do not pay at all, you will be turned over to a collection agency, which is bad news bears for your credit.
Some alternatives to a payday loan do exist. I suggest trying any of the following before looking into a payday loan:
- Negotiate a payment plan with whoever you owe money to
- Charge it to a credit card (lower rates – find our cards here)
- Advance from employer
- Use overdraft protection offered by your financial (See our options here)
- Obtain a line of credit like a home equity loan (low rates – follow this link to read about ours)
- Borrow from your savings (use payroll deduction to automatically stash a little away each payday)
- Borrow from a relative
- Look into a signature loan
- Get a cash advance on your credit card
I am not condemning payday loans. Sometimes the alternatives are just not an option and you need the money. Borrow what you need for necessity, take care of business, pay them back in a timely manner and be done with it. These are difficult economic times and that little extra help may be just what you need to get back on your feet. But do not depend on these loans. In the long run it will cost you more than any other form of a loan and you may get stuck in a hole you cannot get out of.
A few benefits for payday loans:
- Usually no credit check
- Quick and easy to get
- Good in an emergency for quick cash
- May be cheaper than getting late fees or having your car being repossessed
If you have to get a payday loan, make sure you find a reputable lender with low rates and fees. Paying them back should be your first priority when you get paid, and again, only borrow what you can afford to pay back when you get your paycheck.
My best advice would be to have a savings built up (experts say try to have at least 2 months of living expenses in your savings) or have a credit card opened only for emergencies. Some things we cannot plan for, but we can plan for the unexpected!