Payday advance loans are sometimes unfairly labeled as being financially irresponsible by people who have never used them or have used them for the wrong reasons. In reality, when your bank isn’t an option, a payday loan can save the day. Easily accessible, it’s one of the best – and only – avenues for getting fast cash when you need it most. Like any type of financial contract, a payday loan has its pros and cons. Being aware of the risks and how payday loans work in general can help you understand how to use them safely.
What Exactly Are Payday Advance Loans?
Payday advance loans, also known as payday loans, cash-advance loans and payroll loans, are small loans borrowed on a short-term basis to cover all types of expenses, ranging from utility bills to emergency medical costs. Like the name implies, a payday loan is essentially an advance on your own paycheck and is typically due the next time you get paid.
While how payday loans are repaid can vary from one lender to another, it’s common to write a post-dated personal check for the amount of your loan plus the lender’s fee. On the day your repayment is due, the lender can then simply deposit your check to recover the funds loaned.
If you can’t pay back the agreed-upon sum on time, you can ask your lender to roll it over to your next pay date, but keep in mind that delayed payments continue to accrue interest charges and late fees. Some states have even limited the number of times you can roll over your debt or outlawed rollovers altogether. The moral of the story is that while making a late payment is sometimes unavoidable, it should be treated as a last-resort option.
What Are the Biggest Advantages and Disadvantages of Payday Advance Loans?
The biggest benefit of a payday loan is that it can help you get out of a financial bind when you have no other options. For example, if you have taken a big financial hit and can’t afford groceries until your next paycheck, a payday loan can help you put food on the table. The downside is that payday loans come with hefty interest rates. While exact costs depend on the lender, the majority of payday loans have much higher annual percentage rates than credit cards and conventional bank loans.
In theory, that shouldn’t matter much if you repay your loan on time. Even at high interest rates, small loans with short-term limits simply don’t have time to accumulate large interest charges. When interest rate really starts to come into play is if you let it accrue over several pay periods by rolling over your initial payment. With late fees and other additional charges tacked on, it becomes tougher and tougher to pay your loans back on time. If you can’t keep up, you can find yourself trapped in an endless cycle of taking one payday loan to cover another.
If you need a payday advance loan, chances are that you’re already in a financially tough position and can’t afford to pay a fortune in late fees. That’s why it’s so important not to make delaying repayments – or even taking payday loans out in the first place – into a regular habit.
What Do I Need to Qualify for a Payday Advance Loan?
Generally, taking out a payday loan is much easier and less stressful than borrowing money from a financial institution. Unlike traditional loans from banks and credit unions, which typically fund large-scale, long-term investments, short-term payday loans are written for small amounts that can be covered by the borrower’s next paycheck. With lenders assuming relatively little risk for small amounts of money, proof of regular income, up-to-date identification, a checking account and a guarantee of repayment – like a post-dated check or bank account information – are usually all you need to qualify.
How Can I Avoid Problems While Using Payday Advance Loans?
The quick and simple approval process makes payday loans especially attractive when you’re running a bit short on cash, but remember that they’re not meant for casual use. Being able to tell the difference between when you should stretch your own money and when you absolutely need outside financial help is the most important rule of using payday advance loans responsibly.
Before taking one out, you always want to run through all of your options to see if you can find a cheaper solution. If you can’t make your electricity payment, your utility company might be willing to extend its due date by a week or so. On the other hand, if you can’t make the payment at all or are at risk for having your electricity turned off, then a payday loan may be more appropriate. Whenever you do borrow an advance, have a solid plan for how you’re going to pay it off on time. Using payday loans very sparingly and only when you can repay them will keep you out of trouble.