Payday loans: to take or not to take, that is the question

Even you plan in advance all your financial needs, unexpected expenses can happen from time to time. For example, your car can break down and you will need several hundreds of dollars to repair it as soon as possible. Or you can get an unexpected huge utility or tax bill for immediate payment. These expenses are really frustrating but they are inevitable in our life. 

In such situations many people decide to take a payday loan to cover their urgent financial needs. Payday loan is one of the most common types of personal loans that you can take online. It is given for a short period of time (usually for 2 weeks) and used to fill the cash shortage. The loan amount varies from $200 to $1500 depending on the applicant’s income. The more you earn the more money you’ll be able to borrow. The most frequently offered loan amount is $500.

Unlike a home loan or a car loan, a payday loan is unsecured. It means that you don’t need to make collateral for it. On the one hand, it makes the application process easier and shorter. On the other hand, payday loans are more risky for a bank, so you will need to pay a higher finance charge.

Payday loans are also known as cash advance, no fax loans, payday advances, short term loans, bad credit personal loans, bad credit loans, guaranteed online personal loans, cash loans, fast cash, fast loans, immediate cash loans, deferred deposit, and a number of other things. They have one common aim – to provide fast cash in case of emergency.

Online payday loans are widely marketed through e-mail, searching engines and paid adverts. If you want to apply, you need to fill out an online application form that requests your personal information, bank account number, SSN and information about your current employment or other sources of income. It is necessary to mention that by using the Internet you won't need to pay any fees for submitting a loan application.

Lenders need your personal and income information because they don’t check your credit report. Credit checks can prevent many consumers from getting a credit card. It means that if your FICO score is low, your application can be denied or you can be eligible only for a secured credit card. Payday loans let you solve this problem because most people can qualify even if they have bankruptcies or numerous defaults in the past. 

The main advantage of a payday loan is a fast approval process. You can generally be approved within several hours. The loan amount will be transferred directly into your bank account on the next business day. No other form of credit can be obtained so fast. For example, if you apply and qualify for an instant approval credit card, you will receive the plastic itself in one or two weeks. 

The repayment schedule of a payday loan typically ranges up to 14 days. If you decide to extend your loan period, you will be imposed additional fees. All terms and conditions are clearly specified in the application form, so be attentive to the fine print. 

The most serious disadvantage of payday loans is high borrowing costs. While these loans are fast and easy to get, they are rather expensive to use. The Consumer Federation of America (CFA) is warning consumers to be very cautious when using online payday loan websites. Their survey showed that finance charges for such types of personal loans range from $10 per $100 up to $30 per $100 borrowed. The most frequent rate is $25 per $100. 

According to CFA’s researches, only 38 sites out of 100 disclose the annual interest rates for payday loans before customers have submitted their application forms. The reason is simple – these figures are really frightening. Paying $10 on a $100 loan may not seem that much, especially if you need money urgently, but do you know that it is about 240% APR? And this interest rate can even be considered moderate in comparison with other rates. The most frequently posted APR is 652%, followed by 780%. 

Another hidden threat of payday loans is fees. They can rack up rapidly if you make a late payment or if you don’t have enough money on your bank account to cover the finance charge in full. In this case the lender will impose a late payment fee or an insufficient funds fee. So, be very attentive in proper assessment of contract clauses before finalizing the transaction. Given that you don't have much cash on hand now, it doesn’t make sense to waste money. 

If you can't pay back a payday loan in the specified timeframe, the lender will be more than happy to extend the loan period for you. This is where you could double your high interest charges. For example, if you borrow $200 for two weeks, the finance charge is usually around $25. If you extend your loan for the next two weeks, your interest will be $50. If you extend your loan for over three months, your debt could reach $500. 

As you see, it is a bad idea to extend a payday loan for several months because you will need to pay an unreasonable high APR. Payday loan is a short-term loan and has never been designed to use for more than one month. Make sure that you can pay off your debt in full in the specified timeframe. If you need cash for several months, then find long-term alternatives, for example home equity loans. Their interest rates are much lower than the APRs of payday loans.

If you have decided that you need a payday loan, then you can submit your application online. It is an excellent way to avoid the hassle of visiting your local banks, and also hopefully to get a better deal. The process of applications is not only quick but also very convenient as you can go online at any time of day and night that suits you most. 

The Internet is full of adverts for payday loan sites that promise the best terms and conditions. In order to help you make the right choice of a loan provider, we have divided all these sites into three basic groups. 

The first group you can come across is official websites of major banks or lending institutions which you see advertised on TV or in off line media. These sites typically offer various financial services and products, including payday loans. The main disadvantage of such sites is obvious – you need to explore numerous financial products until you find what you need. If you want to make a comparison of payday loans from different lenders, you need to browse each site separately. This process can take a lot of time.

The next type of loan sites is informational or educational resources filled with various tips and articles on the subject of payday loans and personal finance. The articles will generally have links to the sites of banks and lending institutions, either from some specific words in the articles or from banners. While such sites can help you increase your financial literacy and make a more educated decision, you can't really rely on their “best offers”. The lenders featured on the pages have paid for the context adverts.

Another popular type of payday loan sites is a comparison site, which provides you offers from several banks on one page. It will let you easily analyze which payday loan has the most profitable terms and conditions. Typically, you will need to fill out a short pre-application form that includes information about your income and a loan amount you want to take. After that you will receive quotes from several lenders detailing their interest rates and fees.  

Comparison sites are very useful because they narrow the range of your research. However, keep in mind that they typically offer payday loans on which they will get a commission if you apply. So don’t think that the website owners have spent their time and money to collect the most beneficial payday loans available online. 

Where to apply online for a good payday loan? Start with educational websites. The articles will let you better understand what features to pay attention to. Then go to comparison sites and find the best loans for your financial situation. After that you can specify all terms and features of the payday loan you want to apply for on the official site of the bank. If you like what you see, then submit your application online and get fast cash.