Payday loans are often touted as a quick fix for a bad financial situation, letting you bridge the gap between running out of money and your next wage or salary coming in. The basic idea is that you can borrow a small amount of a few hundred dollars for a short period of a week or two, and repay the debt next time you get paid.
This sort of service can indeed be very useful if you've run out of cash for living expenses, or if you're faced with an unexpected bill or expense that you simply can't cover when you need to, but are payday loans always the good choice they're presented as?
First, we'll take a look at the undeniable advantages of these loans, before looking at the disadvantages, and possible alternatives you may be able to use if you decide a payday loan isn't right for you.
The lending criteria for payday loans are very generous indeed, and almost anyone who's employed and has a suitable bank account will likely be approved. This means that even people with terrible credit ratings should be able to get a payday loan, despite being rejected for nearly any other form of finance.
They are also easy to arrange, and you can often get the money in your account in a matter of days. Some lenders can even arrange an overnight transfer of the loan straight into your account the very next day, which is obviously very useful when you need cash in a hurry.
Finally, once you've been approved for your first loan, it's usually a very simple matter to 'refresh' your loan again if you find you need to make use of the facility if funds are again short in the future.
There are, however, two major downsides to payday loans which you rarely see mentioned in the advertisements and web sites promoting them. Firstly, they're very expensive compared to other forms of credit. Because the term of the loan is so short, a fee of 20% of the amount you borrow - which is about standard - will work out to be an eye-wateringly high APR.
The second problem is closely related: because they're so expensive, you can easily be left short of money the next month once you've cleared the loan and paid the fee. In this scenario, it's just too easy to refresh your loan again to cover the shortfall, resulting in more fees, and a never ending cycle of borrowing.
So, if you decide that a payday loan isn't a good choice for you, what alternatives do you have? The first one is making use of a credit card, if you have one. While credit cards are usually also pretty expensive forms of finance, they do allow you to spread the debt over a number of months rather than needing to be repaid straight away along with a fee.
Many bank accounts now offer an overdraft facility, which can also be used to cover a short term lack of money. The interest rate on an agreed overdraft is likely to be better than that of a credit card, but your bank may not approve your application. Beware of going ahead and overdrawing without your bank's agreement, as the charges they will levy in this case will be very expensive.
If neither of these options is available to you, and you have no other way of getting hold of money such as borrowing off family, then a payday loan may be the best option. Just ensure that you use it properly, and heed the warning sign it's giving you about the longer term state of your finances.
Thursday, October 11, 2007
How to Make Wise Payday Loan Decisions
Payday loans go by many names. There's cash advance loan, check advance loan, post-dated check loan, deferred deposit check loan, and direct deposit advance. But by any other title, the principle is the same: a person needs a little bit of money to help them make ends meet until their next paycheck.
Take for example the fictional story of Aldan Devonshire. Aldan has just been hired as a sports journalist for the New York Post. He and his West Highland white terrier, Faust, squeeze into their '01 Corolla packed full with blankets, notebooks, computer peripherals-whatever would not fit into the U-haul mini-trailer. They arrive at their new apartment late Sunday evening, and after setting out a dish and bowl for Faust, Aldan goes to sleep.
On the way to his first day at the office, he suddenly remembers that his Geico payment is due by Friday, and he panics. Then Aldan remembers the electric bill at his old place is also due that week. His first check from the Post won't be cut for three weeks, and with all the costs of relocation and the deposit on the new apartment, there simply isn't enough money! He frenetically brainstorms, and just as he is turning off the interstate he sees a billboard announcing, "Fast Payday Loans." On his way home, he makes a thirty-minute stop at Serendipity's Payday Loans and leaves with $450 cash. Aldan and Faust will make it through until payday.
"...By Any Other Name..."
Payday loans are "easy," that is, the borrower doesn't need to have a superior credit history. Old pay stubs proving employment are generally all that is required, and some lenders will lend to anyone who does not appear on their blacklist of known "bouncers." For this reason, payday loans are considered sub-prime, and like all sub-prime lending, they are expensive.
To borrow $100 for two weeks, for instance, one might typically pay $15 in fees. In terms of APR, that's roughly 390%-in other words, exorbitant! Fast payday loans have high associated costs as results of two things: 1.) the minimal-to-no credit standards needed to take out a loan and 2.) the small size of the loan. Because of the minimal-to-no credit standards, the lender is taking an increased risk of not being repaid, and therefore he charges more. And because the loan is so small, the costs of processing the loan appear disproportionately high.
Top Ten Reasons for Taking Out a Payday Loan
(in no particular order)
Pay bills on time/cut-off notices
Christmas/gifts
Post bail
Unforeseen auto-repairs
Job transitions
Vacation
Relocation
Groceries
School clothes for the kids
Establish credit
There are alternatives to taking out a payday loan. One might be able to get a payday loan on a credit card, for example. Or, even better, some creditors will negotiate late payment options with their borrowers. Another good option is to consult a non-profit credit counselor, who can help you to negotiate a more feasible repayment plan.
But the best option of all is a preventive one, and though it is always being talked about, it is no small feat to practice. I'm talking about budgeting, the art of anticipation and discipline. For most of us, this "art" does not come naturally; rather, it requires hard work and a clear strategy.
Perhaps you have tried budgeting, perhaps you are even trying your hardest to plan ahead financially; but, if you do not have a clear strategy, your budgeting attempts are likely to fail. One possible strategy is to use spreadsheet software to create several virtual accounts where you can allocate money for designated purposes.
Aldan Devonshire, for instance, has a Geico account, a car payment account, a groceries account, and, yes, a Nintendo Wii account, as well as several others. By dividing up his bank balance among these several accounts, he can see exactly how much he has left for leisurely spending, and in this way, he avoids overspending.
Payday loans are a fast, easy way to obtain minimal amounts of money. They are designed for people in a financial pinch, who need just enough to make it until their next paycheck. As such, they are expensive in terms of fees and rate. While it is best to avoid such financial straits and to negotiate directly with creditors first, a payday loan can come in very handy indeed.
Tuesday, October 9, 2007
Comparing Payday Loans To Personal Loans
Payday loans have, in many people's eyes, a reputation as being an expensive form of credit. It's certainly true that the imposition of a flat fee of 10% to 25% of the loan amount works out to be a very high APR when you take into account the short term nature of the loan, and although taking out a payday loan may actually work out to be cheaper than some other forms of finance such as long term credit card debt, the interest rate will still be much, much higher than that of a personal loan. So why do people take out payday loans if they're so costly?
The first reason is simply speed. Many people resort to a wage advance when they literally don't have any money left at the end of the month, and yet have bills to pay and food to buy. A payday loan can be arranged on the same day you apply, with the cash in your account the next day. A personal loan simply can't compare to this - there will be complex forms to fill in, credit agreements to sign and return, credit checks to be carried out... the list goes on. When you need quick cash, a payday loan might well be the only answer.
Another advantage of these loans is the fact that you can borrow only a small amount if that is what you want, just enough to see you through your current cash flow problem. Most personal loans have a much higher minimum amount you need to borrow, and if you don't need that much then you're saddling yourself with unnecessary and unwanted debt.
A related point is that the repayment term of a payday loan is, by its very nature, a lot shorter. While the APR rate on a personal loan might appear to be much lower, by spreading the repayments over a longer term you may well end up paying more in interest overall. The combination of having to borrow a larger amount over a longer period is certain to cost more in the long run than taking out an advance of just the amount you need over as short a time frame as possible.
The final reason is that because of the way payday loans work, they're very easy to be approved for. People with all kinds of credit ratings are likely to have their applications accepted, which is certainly not the case with other forms of finance.
No personal finance expert would recommend taking out a payday loan lightly, especially if you get into the situation of having to renew the loan every month, but taking the above advantages into consideration it's easy to see why sometimes payday advances can actually be a perfectly prudent way of bridging a temporary financial gap.
The first reason is simply speed. Many people resort to a wage advance when they literally don't have any money left at the end of the month, and yet have bills to pay and food to buy. A payday loan can be arranged on the same day you apply, with the cash in your account the next day. A personal loan simply can't compare to this - there will be complex forms to fill in, credit agreements to sign and return, credit checks to be carried out... the list goes on. When you need quick cash, a payday loan might well be the only answer.
Another advantage of these loans is the fact that you can borrow only a small amount if that is what you want, just enough to see you through your current cash flow problem. Most personal loans have a much higher minimum amount you need to borrow, and if you don't need that much then you're saddling yourself with unnecessary and unwanted debt.
A related point is that the repayment term of a payday loan is, by its very nature, a lot shorter. While the APR rate on a personal loan might appear to be much lower, by spreading the repayments over a longer term you may well end up paying more in interest overall. The combination of having to borrow a larger amount over a longer period is certain to cost more in the long run than taking out an advance of just the amount you need over as short a time frame as possible.
The final reason is that because of the way payday loans work, they're very easy to be approved for. People with all kinds of credit ratings are likely to have their applications accepted, which is certainly not the case with other forms of finance.
No personal finance expert would recommend taking out a payday loan lightly, especially if you get into the situation of having to renew the loan every month, but taking the above advantages into consideration it's easy to see why sometimes payday advances can actually be a perfectly prudent way of bridging a temporary financial gap.
Sunday, October 7, 2007
The Advantages of Payday Advance Loans
Payday advance loans are becoming increasingly popular for a number of reasons. One of these reasons is that the internet has helped to reduce the costs of borrowing money quite considerably. Where before finance companies would have to incur significantly more overheads from their brick and mortar operations, now these have been slashed with the introduction of their web-based businesses.
Despite this, payday loans and cash advances are not suitable for everyone. An example would be if you were looking to buy a car for example. In that instance financing the purchase through a bank loan would be a far more suitable arrangement. Payday cash advances are also not suitable for those that do not expect to have the money in place to finance a purchase within a short period of time. An example would be if a person was not expecting to have the liquidity to finance a purchase within the next few months: in that instance a bank loan would be a more advisable financing option.
Payday cash advances are becoming increasingly popular for a number of reasons, not just the relatively low cost of borrowing that is now in place. One of these reasons is the speed at which money can get in the hands of the borrower. Should a person have the essential paper work and information to prove their validity for a loan; then a person can expect to have the money in place within a time frame of significantly less than a week. This is much faster than other financing options and can help the borrower to get ready cash at the time that they need it the most. In most cases all a person will need is evidence of employment in the form of a wage slip, and then they will be in a position to get their money straight away.
The friendly approach adopted by employees of cash advance companies is also an important reason why people are opting to approach payday loan services when they are in need of money. From a survey conducted in early 2005, people felt that they were being unfairly judged when they approached their bank for money; however felt that employees of cash advance companies were less judgmental and far more appreciative of their situation. This, along with other reasons can be a real advantage of choosing a payday loan provider.
Payday cash advances are also becoming increasingly popular as a result of credit card companies charging very unreasonable fees for cash advances, feeling that they had the opportunity to do so being the only major resource in the marketplace. Today credit card companies charge around 3% with a minimum fee of $15. Many borrowers feel that this rate is unfair and is merely a means of taking advantage of people who are in a desperate situation. For this reason many are now finding that they are able to get a far more competitive rate from a cash advance provider.
Sydney Cash Advance
Applying for an online cash advance is an alternative to a bouncing check, pawning personal property or borrowing money from family and friends. It also helps you to protect your credit rating by allowing you to make your bill payments on time. An emergency situation requires emergency cash advance especially if the alternatives mentioned are impractical or embarrassing. When the financial crisis involves something of much importance like life, a job or credit standing, the situation can be aptly termed as an emergency.
Applying for a Sydney cash advance can pay for unexpected medical bills, car repair expenses or to fund a check that has been previously committed. Emergency situations can happen even to individuals who practice financial planning. These are the people who have money saved from each paycheck in preparation for financial shortfalls. There comes a time when a periodic need for short term financial assistance arises. An emergency cash advance provides valuable assistance when used in a responsible manner.
The cash advance industry knows that quality borrowers hold the key to keeping fees low and profits high. This scenario is a win-win situation for both the borrowers and the lenders as consumer needs are met with minimum fees while lender operation is ensured with a positive income. Those who have been continuously deprived of access to traditional credit are not necessarily bad and irresponsible borrowers but may just be categorized as high-risk for failure to provide requirements that will help them to be categorized otherwise.
Traditional banks can likely charge high fees for small, short-term transactions. They are also likely to turn their backs on the type of borrower who patronize cash advance to pay bills to avoid bounced check charges or loss of basic services. The banking industry is not even likely to open branches in lower income areas where a cash advance borrower typically resides. Emergency cash advance providers have filled in the gap left by the banking industry. Consumers are being asked to pay for a given service and they do so willingly because of the relevance of the service in their everyday lives.
There are a lot of products and services that are introduced in the market to make people's lives much easier. Applying for a cash advance in Sydney is one of these and it can be so when it is used to take care of a one-time situation instead of a long-term situation. It works to the borrower's benefit as it allows unexpected expenses to be taken cared of immediately rather than waiting for the next payday where it might be too late. It wouldn't work for people who live from paycheck to paycheck with no money being left-over. A good financial plan would include borrowing only the amount needed and making a budget that includes for its repayment when due.
Friday, October 5, 2007
Are Faxless Payday Advances Easy To Get?
Why the faxless payday advance sounds so attractive? Because it means fast money. No need to bother with filling in application forms and faxing them to the lending institutions. It's all already done! Your pre-approved cash advance limit enables you to draw required funds instantly. You can do it using the online banking facilities, ATM terminal or just approaching the cashier at your bank. Normally, you'd use your credit card to access these funds; being aware of the daily limits applicable to the sum and number of withdrawals.
The fact that the faxless payday advances are so easily accessible, shouldn't make it every day's source of money. Only in rare circumstances should these funds be drawn upon. If nothing else, excessive bank fees should be of a sufficient deterrent.
There is no interest free period for the faxless payday advances, with fees higher than for other credit card transactions, which means interest charges start from the day of the availing until the advance is paid back. The reason for the high charges and additional fees is that the cash advance facility carries a higher risk than normal purchases because there is a higher chance of default and delinquency.
A form of the easy faxless cash advance that has been growing by leaps and bounds is the payday loan or paycheck advance that is designed as a stopgap measure between paydays. This bad credit cash advance is the bulwark of low-income, service-sector workers with poor credit rating who live from paycheck to paycheck and have no extra funds to cover unexpected expenses. However, the finance charges associated with same day payday advance is staggering, as much as 911% (annualized) for 7 days, making it the most expensive instrument for debt financing.
As the demand for faxless and other cash advances grows, the businesses involved in money lending are growing with a fast rate indeed. Only a few years ago, nobody in America heard about Cash 'N Go or Check Into Cash organizations. Today, they have grown to become serious players on the personal finances arena. Americans need their services, to get from one payday to the next. The less positive side of the boom is that many people just lose their ability to manage their finances better. Why should they, if they can get an injection of cash today?
For some, there's a moral dilemma facing payday cash advance providers. They stand accused of profiting from the poorest members of the society. To some degree, it may be true. Banks try to steer clear of these issues, by not offering payday cash advance facilities. One thing needs to be mentioned: if not for the cash advance industry, operating legally and in line with the consumer code, there would always be loan sharks taking advantage of those in need.
The US Military enjoys a special faxless payday advance system. The idea is, to help its serving members in time of need, with easily obtainable cash. Their families are entitled too, to apply and enjoy these benefits. As the interest rates charged are significantly below those of the mainstream lenders, it's a very attractive money saving solution. The only requirement is for the member to be on active military duties.
Quite unusual form of a cash advance is a lending facility that enables anybody who is a plaintiff in any type of lawsuit, to ask for the Pre-Lawsuit Settlement. The sum that can be obtained this way differs, depending on the amount of possible settlement. In some large compensation cases, it can amount to hundreds of thousands of dollars. Still, the money may be needed straight away, to pay for the basic expenses, including legal help.
There are companies that specialize in faxless cash advances, sometimes as fast as 72 hours depending on the merits of the case, and the financial company absolves the borrower from liability in case the lawsuit does not prosper. This means the borrower does not have to pay the loan back if no money is forthcoming as a result of the litigation. However, if the litigation is successful, the loan is payable with a cash advance fee of 15%. A penalty that can be avoided, by reading the fine print of the contractual terms.
The fact that the faxless payday advances are so easily accessible, shouldn't make it every day's source of money. Only in rare circumstances should these funds be drawn upon. If nothing else, excessive bank fees should be of a sufficient deterrent.
There is no interest free period for the faxless payday advances, with fees higher than for other credit card transactions, which means interest charges start from the day of the availing until the advance is paid back. The reason for the high charges and additional fees is that the cash advance facility carries a higher risk than normal purchases because there is a higher chance of default and delinquency.
A form of the easy faxless cash advance that has been growing by leaps and bounds is the payday loan or paycheck advance that is designed as a stopgap measure between paydays. This bad credit cash advance is the bulwark of low-income, service-sector workers with poor credit rating who live from paycheck to paycheck and have no extra funds to cover unexpected expenses. However, the finance charges associated with same day payday advance is staggering, as much as 911% (annualized) for 7 days, making it the most expensive instrument for debt financing.
As the demand for faxless and other cash advances grows, the businesses involved in money lending are growing with a fast rate indeed. Only a few years ago, nobody in America heard about Cash 'N Go or Check Into Cash organizations. Today, they have grown to become serious players on the personal finances arena. Americans need their services, to get from one payday to the next. The less positive side of the boom is that many people just lose their ability to manage their finances better. Why should they, if they can get an injection of cash today?
For some, there's a moral dilemma facing payday cash advance providers. They stand accused of profiting from the poorest members of the society. To some degree, it may be true. Banks try to steer clear of these issues, by not offering payday cash advance facilities. One thing needs to be mentioned: if not for the cash advance industry, operating legally and in line with the consumer code, there would always be loan sharks taking advantage of those in need.
The US Military enjoys a special faxless payday advance system. The idea is, to help its serving members in time of need, with easily obtainable cash. Their families are entitled too, to apply and enjoy these benefits. As the interest rates charged are significantly below those of the mainstream lenders, it's a very attractive money saving solution. The only requirement is for the member to be on active military duties.
Quite unusual form of a cash advance is a lending facility that enables anybody who is a plaintiff in any type of lawsuit, to ask for the Pre-Lawsuit Settlement. The sum that can be obtained this way differs, depending on the amount of possible settlement. In some large compensation cases, it can amount to hundreds of thousands of dollars. Still, the money may be needed straight away, to pay for the basic expenses, including legal help.
There are companies that specialize in faxless cash advances, sometimes as fast as 72 hours depending on the merits of the case, and the financial company absolves the borrower from liability in case the lawsuit does not prosper. This means the borrower does not have to pay the loan back if no money is forthcoming as a result of the litigation. However, if the litigation is successful, the loan is payable with a cash advance fee of 15%. A penalty that can be avoided, by reading the fine print of the contractual terms.
Wednesday, October 3, 2007
Alternatives To Consider Before Taking Out A Payday Loan
There's no doubt that a payday loan can provide a valuable injection of cash at the end of the month when things are getting tight, but there's also no denying the fact that such loans aren't really a good choice for long term borrowing. After all, they are designed to be used as a temporary sticking plaster to get you through a financial crisis, and not as a regular part of your budgeting strategy.
The problem is that in some cases, it can be all to easy to fall into the trap of needing to take out a new loan every month, merely to cover the repayment of the previous loan, along with the sometimes hefty charges associated with it. Although in many cases a payday loan may well be the right choice, in others an alternative form of finance may be a better bet. So what other options might be available to you?
The majority of people these days have access to one kind of bank account or another, and depending on your circumstances and credit rating you may be able to arrange an overdraft with your bank. Of course, a fee will apply, along with interest charges, so you'll need to calculate how much this option will cost you and whether it will be cheaper than a payday loan. The advantage of an overdraft is that you don't need to 'renew' it each month, you can just slowly reduce the amount you are overdrawn by. This means that you can spread your repayments over time rather than having to repay the full debt on your next payday.
Another, and perhaps better, alternative is to make use of a credit card balance transfer facility. Many credit cards will let you transfer a balance from a bank account, effectively letting you deposit your card's credit limit directly into your account. Although a fee of around 3% will usually apply, this will be a one off fee, and if you can get a card with a long 0% period then you can slowly reduce the balance on the card without any extra charges. This will work out to be much cheaper than a long string of renewed payday loans, but you will need to have a decent credit rating for this strategy to be available to you.
Should your credit rating not stretch to a new piece of plastic, then try and find out if there's a credit union in your area. These non-profit organizations can arrange low value loans at much more attractive rates of interest, and will usually have much less stringent credit rating requirements than finance from banks and other institutions. Consult with Citizens Advice or a similar charity to see if there's a credit union near you and whether you're eligible to join.
These are just some of the alternative ways of raising finance that you might consider before committing to a payday loan. If after looking at these options you still feel a wage advance is your best option then by all means apply at one of the many sites out there on the web - at least you'll be doing so fully aware of the benefits and risks involved.
The problem is that in some cases, it can be all to easy to fall into the trap of needing to take out a new loan every month, merely to cover the repayment of the previous loan, along with the sometimes hefty charges associated with it. Although in many cases a payday loan may well be the right choice, in others an alternative form of finance may be a better bet. So what other options might be available to you?
The majority of people these days have access to one kind of bank account or another, and depending on your circumstances and credit rating you may be able to arrange an overdraft with your bank. Of course, a fee will apply, along with interest charges, so you'll need to calculate how much this option will cost you and whether it will be cheaper than a payday loan. The advantage of an overdraft is that you don't need to 'renew' it each month, you can just slowly reduce the amount you are overdrawn by. This means that you can spread your repayments over time rather than having to repay the full debt on your next payday.
Another, and perhaps better, alternative is to make use of a credit card balance transfer facility. Many credit cards will let you transfer a balance from a bank account, effectively letting you deposit your card's credit limit directly into your account. Although a fee of around 3% will usually apply, this will be a one off fee, and if you can get a card with a long 0% period then you can slowly reduce the balance on the card without any extra charges. This will work out to be much cheaper than a long string of renewed payday loans, but you will need to have a decent credit rating for this strategy to be available to you.
Should your credit rating not stretch to a new piece of plastic, then try and find out if there's a credit union in your area. These non-profit organizations can arrange low value loans at much more attractive rates of interest, and will usually have much less stringent credit rating requirements than finance from banks and other institutions. Consult with Citizens Advice or a similar charity to see if there's a credit union near you and whether you're eligible to join.
These are just some of the alternative ways of raising finance that you might consider before committing to a payday loan. If after looking at these options you still feel a wage advance is your best option then by all means apply at one of the many sites out there on the web - at least you'll be doing so fully aware of the benefits and risks involved.
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