Payday Loans and Fast Cash Guide

When Is It A Good Idea To Use Payday Loans?

Using payday loans is risky business.  They are expensive and difficult to pay off.  However, there is a time and a place when they make perfect sense to use.  In this post I want to cover when this is, and share some details of why they are so risky.  One of the biggest things I preach on this site is to arm yourself with some knowledge before you decide if fast cash loans are the right choice, and I feel that we haven’t really discussed this matter yet.

When Does It Make Sense To Use Payday Loans?

Emergencies are the most common time to use a loan like this.  Car repairs that can’t wait, a new hot water heater, or paying the emergency room (unless they allow you to make payments to them).  Other common uses for them are bills that fall between your paydays, namely your rent.

Uncommon things that still make sense are having to travel for a job interview and not having the money to get there, or having to buy school supplies for your kid.  These are expenses that are mandatory, but since you’re between paydays you simply can’t afford them right now.

When Is It Not A Good Idea?

This could be a very long list, but we can sum it up with “just about everything else!”

Some people use payday loans for fun money, which is a horrible idea.  You don’t want to buy food and smokes with borrowed money!  That leads to wasting the money and then the payday loan trap, which we’ll cover in the next section.

Other times when these loans should be avoided is when your payday is still a long way away, or not coming at all, and when your next paycheck is already spent before you get it.  It’s safe to assume that almost half of your next paycheck is going to be spent on paying your loan back, so factor that in as well.

So What Are The Risks?

Some times when people use payday loans they end up taking other loans to cover the ones that they have to pay back.  This is called the payday loan trap, and it’s damn near impossible to get out of it.  This article from The Nashville Ledger covers this perfectly if you’re interested in seeing just how bad it can be.

All problems stem from the high price and timing of repayment.  You can expect to pay somewhere in the range of $20 for each $100 that you borrow.  The amount that you actually pay is regulated by your state’s government, but you can expect to pay whatever the maximum amount is.  Using the $20 from above, a $500 payday loan is going to cost you at least $600 out of your next paycheck, plus whatever ridiculous fees the lender is going to charge you.  Can you afford to have that much of your next paycheck gone before you get to touch it?

The lender will likely give you the option to rollover your loan, or extend its terms.  Accepting this offer is the precise moment that you start down the payday loan trap!  Fees are added along with you borrowing more money, and until you’re completely clear from the loan every paycheck you get will go to the lender to cover this.

So Is It Worth It?

I firmly believe that you should do your research on payday loans then sleep on it before applying for anything.  There are other options out there that can help out, check out these other articles on Fast Cash Authority for some ideas:

If you choose payday loans, please do so responsibly.  There are a lot of ways to get into trouble with these, but it’s also easy to stay safe!

Understanding Installment Loans From Payday Lenders – They Might Not Work How You Think They Do!

The definition of installment loans is a loan that is repaid over time with a set number of scheduled payments, but one that comes from a payday lender and your local bank are going to be very different.  The most glaring difference is the extreme price, but there are other things as well.  Knowing what you’re getting into before you apply for a loan is one of the single best things that you can do to protect yourself from falling into major debt.  This post will help clear up some of the myths surrounding these loans so that you can apply with confidence if you choose to.

So What Is The Real Cost Of Installment Loans?

Getting an unsecured personal loan from your bank is likely to net you a fixed APR of somewhere between 6-15%, which is great if you can take this route.  Most banks will set the loan minimum in the $3,000 range, much more than a payday lender can offer.  Doing the math with a $3,000 loan, at 9.5% interest, for 3 years will have a monthly payment of about $96.10, which makes the total payment to the bank $3459.60.  Not too bad if you ask me!

Getting the loan from a payday lender will give us an entirely different set of numbers.  Going off of the information on a direct lender’s site that I will not name, they offer installment loans that range from $250 to $800, with an APR of 360%, with the loan to be repaid over 12 biweekly payments.  Now doing the math here with an $800 loan we get 12 biweekly payments of $139.71, and a total payment of $1697.13.  You’re going to end up paying more than the amount you borrowed in interest!  Do some quick math and figure out what your life will be like with $140 missing from your next 12 paychecks before you decide on these loans.

The problem now becomes that many people simply cannot get a loan from the bank, which is why so many people turn to installment loan lenders in the first place.

What Does It Take To Get A Payday Installment Loan?

To be honest, not much!  The requirements are almost the same as a normal payday loan.  You need to have steady employment, meet the lender’s monthly income requirement, and have a checking account that is in good standing.  Some lenders are going to check your credit, but in most cases they are doing so to see how much you currently have in outstanding collections, rather than your credit score.

These lax requirements are the reason that many people turn to installment loans.  They are almost TOO easy to get, which leads some to apply without checking out all of their other, more affordable options.

Are There Any Affordable Alternatives To Installment Loans?

If you’ve read this far you may be turned off by the idea of these loans, that’s fine, there are alternatives out there!

Many banks are getting hip to the idea of short term lending, which usually ends up much more affordable than using a payday or installment loan.  Take Wells Fargo for example, they offer something to their customers called a direct deposit advance.  This works exactly like an online payday loan, but it happens completely within the bank and costs a hell of a lot less.  Rates for these are $1.50 per $20 borrowed, or $7.50 per $100.  To compare, average payday loans charge $17-30 per $100 borrowed.

For something with longer terms you can look into personal loans from your bank or local credit union.  These are going to require that you have a decent credit score, but they will be much more flexible in both your terms and amount you can borrow.  Fortunately, banks have gotten much faster over the last few years, and can rival payday loans in the time it takes for you to get paid.  Assuming you’re approved, funds can be in your bank account by as soon as the next business day.

Which Loans To Avoid If You’re Trying To Save Money

There are lots of fast loans out there, and most of them are ridiculously expensive.  Title loans are a common option that get too many people in trouble.  Rather than go much further into these, I’ll share a quote from Americans For Fairness In Lending:

  • The typical car title loan has an annual interest rate of 300% or more.
  • In Oregon, 19% of title loans that were paid off in May 2002 had been renewed six times prior to payoff.
  • The Missouri Auditor found that, on average, car title lenders make 3.5 times more renewal loans than new loans each month.
  • Over half of the states ban high-priced car title lending, but in states where it is legal the industry is growing at an alarming rate.

It’s pretty scary stuff!

Pawn shops are also a common way to get money if you have valuable stuff laying around your house.  There is less risk here if you don’t plan on getting whatever you pawn back, but if you do the rates are among the highest in the industry.  Loan terms are generally a few months, but expect the lender to charge you the maximum interest they legally are allowed to do.

Borrowing  Money Is Never Fun

Once you get the whole picture, payday installment loans probably aren’t a good idea to use.  However, knowing exactly what to expect may help you get the loan from a payday lender and use it safely.  Whatever you do, please use caution and responsibility with your loan to make sure that you don’t end up with a mountain of debt in front of you.

 

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