People facing cash shortage have plenty of options to borrow money. There are ways you can get access to cash without having to do much other than filling an application. One such way is payday loans. These loans are short-term borrowing strategy that often comes to the rescue of those who are in a rough spot such as bill overdue, missed mortgage payment or medical emergency. However, before you sign up for one, understand the risk and cost involved here. Because these loans are not for everybody and surely not for someone who is careless about finance.
Most often than not, payday loans let you borrow a few hundreds dollars in exchange for your promise of paying it back within a week or two. The lender will require that you write a check for the amount borrowed plus any fees and interest on the amount. Once the time is up, the lender will cash out that check. The problem arises when your check bounces due to shortage of fund in your account or when the cost of borrowing exceeds your ability to pay. In general, these loans are expensive and costlier than traditional loans offered by banks or credit unions. So, before you take out this payday loans, see what is in it for you and make sure to review the laws pertaining to the state you live in.
Typically, a payday loan will carry an annual percentage rate higher than any other types of borrowing, such as mortgage, student loan and credit cards. It may exceed over 100 percent in some cases and 500 percent in extreme scenarios. And you have only a limited amount of time to pay it all back to the lender. The beauty of these loans, however, is that you get access to money without background check, credit score check, employment history or any other formalities. As a result, these loans are popular with borrowers who are facing short-term financial difficulties.
There are many sources of payday loans in today’s world. Some websites act as marketplaces for people looking for money and people wanting to earn interest by lending money through these loans. Then there are individual lenders and institutions backed by big banks offering this service. The major pitfall of these loans are the high fees which means they can make the matter worse instead of solving the problem. So, if you are in need of fund for short-term or long-term, your expenses are only going up with this type of loan. It may get you through rough patch but it will also add to your existing debt unless you have a good strategy in place.
You may also get into trouble if this type of loan doesn’t work out as planned. Your credit rating may take a nosedive, banks and credit unions may refuse to do business with you in the future. Your account may be up for collections due to unpaid bills which will decrease your credibility even further. For this and many other reasons, these loans should be chosen carefully.