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Because the fees for payday loans are so high, and because of the potential for falling into the payday loan trap of needing to extend your loan time and time again incurring exorbitant fees, you should look at your other alternatives before considering a payday loan, or getting cash loans in general. Certainly, if you have any savings you should tap that first. Do you have a credit card against which you could draw a personal cash advance? Does your employer offer payroll advances that you can pay back through payroll deductions? Do you have friends or family who could spot you some cash until payday? If none of these are alternatives for you, if you really need the money for necessities (not the race track or a new pair of Manolo Blahnik shoes), and if you know you will be able to pay off the loan within the agreed upon time frame, then and only then consider a payday loan.
Other than the sky high interest, the No. 1 drawback of payday loans is that many people who tap the fast cash loans market dig themselves deeper and deeper into a financial hole from which there may be no easy escape. By their very definition, people taking out payday loans are not even making it living paycheck to paycheck. When their loan comes due, very often they do not have the money to make good on the debt. When that happens, the payday lender allows the borrower to extend the loan—for an additional fee, of course—until the next payday. Payday lenders don't care if this goes on indefinitely. It's how they bring home the bacon. For the borrower, unfortunately, it is a cycle that only compounds their financial predicament.
Depending on who you talk to, payday loans are being used for everything from buying new TVs to paying for basic needs such as food and medicines. According to the Community Financial Services Association of America, a trade group for payday lenders, the typical payday loan applicant is in his mid-thirties, employed, with a household income in the mid-thirties and use their payday loans to cover unexpected expenses, bridge short-term cash needs, avoid bounced check fees, late payment penalties, or pawning personal possessions. Since there are no restrictions on the uses of the money loaned, borrowers really can use the money for anything.
The main benefit of a payday loan is that it's there when you need it. While the interest rates on payday loans are insanely high, supporters of payday loans argue that they provide quick loans for people who are employed but are experiencing a cash flow crunch for one reason or another. For those individuals who need an instant cash loan and who can pay back the money borrowed plus the fee within a few weeks, a payday loan can be a viable, albeit extremely expensive, alternative. A payday loan can more than pay for itself if it helps you avoid two or three bounced check fees. The key is paying the loan back when it comes due—or sooner if you can. Do not continue to roll the loan, as the fees will mount to levels that you will be unable to pay.
Simply put, anyone with a job qualifies for a payday loan. To get one of these fast cash loans, most payday lenders require an applicant to have a checking account and verifiable employment. Some payday lenders require additional collateral, such as the title or registration to the borrower's car. Most payday lenders do not run credit checks on applicants, but they do use database companies such as TeleCheck Recovery Services or ChexSystems to screen out risky borrowers who have a history of bouncing checks.
Fringe banking is the term that has been coined to describe the core users of services offered by check cashing stores and fast cash lenders. Fringe banking is also referred to as the non-bank financial industry, members of which are called the "unbanked." Hardly a tiny industry, fringe banking transactions account for approximately $200 billion in transactions according to the Treasury Department. Fringe banking is growing at a phenomenal rate. Today there are as many as 7,000 fast cash lenders, with an estimated 20,000 to 25,000 expected to set up shop across the U.S. in the next six to eight years.
Are you thinking about getting cash loans? A payday loan is a type of very controversial short-term cash loan for anywhere from $100 to usually no more than $500. Payday loans are sometimes called fast cash loans, instant cash loans, cash advance, and payday advance loans, among other things. Let's say you're running short on cash, but you won't get paid for another few days. You want to borrow $200, so you write a personal check for $230 to cover the loan plus the fee to borrow the money. The payday lender agrees to hold the check until your next payday. Come payday, you can pay off the check with cash, allow the payday lender to deposit it, or write another personal check to cover the amount of the original check plus a new loan fee.
If you are considering a payday loan and want to learn more about them, you can find information at Bankrate.com. Bankrate.com is a Web site used by financial industry professionals and everyday consumers alike to track interest rates on things such as mortgages, auto loans, and savings and checking accounts. Bankrate.com has reams of information on all aspects of personal finance and money management, including information on fast cash loans. Don't go about getting cash loans blindly!
Payday loans are different from other loans in two main ways: • First, the loans are very short-term loans, so short, in fact, that most financial institutions don't offer similar products. • Second, the fees—or interest—you pay on a payday loan is extremely high. A recent report revealed that payday lenders charge anywhere from 416% to 988% interest for a $100, 14-day loan and that the national average annual percentage rate (APR) charged is 474%. Surprisingly, despite this, the payday loan industry is growing by leaps and bounds across the country. The Community Financial Services Association of America, a trade group for payday lenders, estimates that as many as 25,000 new payday lender shops will open up in the U.S. over the next six to eight years.
Even if you have bad credit cash loans, such as payday loans, are available to you. Payday lenders don't run credit checks on their applicants. As long as you can prove you have a checking account and a job, chances are you will qualify for a payday loan. If you have a history of bouncing checks, even a payday lender may deny your application—this is because payday lenders use services such as TeleCheck Recovery Services and ChexSystems to see if you are on record as bouncing checks. If so, you may be considered too high a risk by the payday lender's standard and may be denied a loan.