Payday Loan - The Downside to Payday Advance Loans [Payday Loan]
November 27, 2007, 09:42:55

No matter by which name they go by (either cash advance loans, check advance loans, postdated check loans or deferred – deposit check loans), Payday Advance Loans belong to a category of extreme measures to get quickly out of financial problems. They may seem as a good idea on the short term, but they usually are the beginning of a vicious circle, very difficult to get out of.

There are people who resort to such methods of obtaining some money on the short term: young people who do not understand financing very well, people who are deeply buried in debt or persons who struggle to earn a living from day to day.

The downside to this method of obtaining the necessary amounts of money is the excessive fees you have to pay the lender. A lender can lend you $200 for up to 15 days (two weeks). However, the fee requested in exchange is $60. The debt can be extended another 15 days, but you will have to pay $60 per each day you are late with the payment. Another $25 will be perceived by the company, in addition to what you have to pay the bank, if your bank account reaches zero because of these fees.

The way payday loans work is simple. You may need some money, very fast, for a short period of time, a few weeks (usually up to four weeks). To obtain it, you must show a proof of employment, an identification card and a postdated check for the amount of money you want to borrow plus the payday loan fee. You will leave this check at the lender. Some companies perceive larger fees, while others may charge smaller taxes. The catch is that the annual interest rate of the payday loan is very high, over 300-400%. If you are sure that you can pay back the money in a short while, it may be a good choice for getting out of the financial trouble. Many people, however, postpone returning the payment by many months and they end up in a more serious financial crisis because of the huge annual interest rate. In the end, they will be in a more difficult position than before taking the payday loan.

There are other safer and less expensive alternatives to getting such a loan. Even the US Federal Trade Commission advises people not to take payday loans.

You can ask your employer for a pay in advance, or you can contact a local credit union for a small loan. You can turn to your friends and family for some money using a written contract. If you have a hard time paying the debts, you can discuss with your initial creditors to ask for some additional time. Your bank can offer you overdraft protection for your account. By doing this, the bank will pay the checks you sign if at one point you do not have enough money in the account and you avoid insufficient fund fees a well as returned check fees.

But the best thing you can do is to analyze your financial situation, your expenses and your incomes to see how much money you can save monthly and put them into a reserve account.

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