We’ve all had times where we were in a financial crunch and a little extra cash just to get through to payday would have helped out. An entire industry has sprung up in response to this need. No one could miss the cash advance, payday loan and check cashing offices scattered throughout mini-malls across America. These are short term loans with no credit requirements and exorbitantly high fees. If you have never taken out a payday loan, you may not be aware of just how financially dangerous this cash quick option can be. As a clear reflection of the danger inherent in this questionable business, more and more states are taking steps to regulate, control and even ban payday lending.
Getting a payday loan is an easy process. Most lenders require only that you have a job that you have held for a few months, an active checking account, and a home address. In some cases you can even apply online and never leave your home. No credit check is required, as cash advance loans are commonly used by those without the resources to access credit in any other way. Unfortunately, you may find yourself paying for your easy money the hard way.
Cash advances and payday loans are typically due on your next payday or in 14 days, whichever comes first. You will pay a set fee, typically in the range of $15-$30 on every $100 borrowed for that two week period. While the fees are high for a two week loan, the true financial risk of payday loans is not that initial fee. Many people find themselves unable to repay their loan when the two week period is up. Extensions are an option from these lenders; however, fees will multiply. If you borrow $300 from a lender with a $20 per $100 fee structure and pay it back on time, you will have paid $360. Add a two week extension to that loan, and you now owe $420. Very quickly you can find yourself owing more than you initially borrowed. The overall annual percentage rate on a payday loan can be as high as 5000% with an APR around 400% being average.
Furthermore, some pawn shop and payday lenders prey on the most financially vulnerable in our society. If you have a credit cared in your wallet or an emergency savings account, you will never find yourself visiting one of these establishments. It is those working Americans who struggle paycheck to paycheck who find themselves borrowing when they cannot pay their rent or have a car repair bill due. In the simplest terms, if you could not afford the cost initially, it is unlikely that you will be able to afford to repay the loan when it comes due in just two weeks.
Keep in mind that quick cash is highly dangerous to some who have any feeling at all they will not pay the loan back in time. The best thing to do is keep your eyes wide open and know exactly what you are getting into when stepping into your first cash advance type of loan. Make sure you do not become addicted to high interest loans and that you always pay them back on time.