If you are lucky, you may not be familiar with the term “flash credit.” A payday loan is provided by a third-party lender and it is believed to help consumers get out of last-minute financial jams by offering a cash advance on an upcoming paycheck. Although it is a good thing to get out of a difficult situation, the interest paid by payday providers usually exceeds 100%, which can make a more difficult place even more difficult. So, are payday loans a great service for people in need, or are they an example of loan shark companies that fall prey to people’s despair? We will look into it in the following article. (Keep your credit score healthy and your debt under control, view Six major credit card errors.)
Why wait for a payday?
A payday loan works like this: you have too little money and you can’t wait for your next salary, so go to your local payday borrower (some are even oHazel Motesine nowadays) and ask to set up a payday loan – usually somewhere between $ 50 and $ 1, 000, although the higher limits are usually harder to qualify for. You write a post-dated check for that amount plus the costs that you now owe the lender. You get your money right away and when the payday runs around, the lender will cash in your check and collect his winnings.
People who use payday loans are usually in situations where they have few other financial alternatives. In their eyes, a flash credit is a way to stay in the water for a short time without having to ask for handouts. People with low credit or without credit are ideal customers for payday borrowers. (For more information, see The importance of your creditworthiness .)
One step forward, two steps back
In most cases, a payday loan is not an attractive option for short-term financing problems. Extraordinary interest costs, reliability of the minor lender, small size of the loan, future dependence and the possible negative effects that the lending of these lenders can have on your creditworthiness are all valid reasons for avoiding a payday loan if possible. (See Do you live too close to the edge? )
The amount of interest charged by payday lenders is no joke. Annual interest between 200% and 500% is the industry standard. For example, the following chart shows the annual interest costs of a fee of $ 18 (primarily the interest) that is calculated over a loan amount of $ 100 from different credit lengths. Payday lenders are often able to circumvent the usury legislation – government limits on the amount of interest that a lender can charge – by calling their interest costs “service costs” that are not subject to the same rules as interest costs in many places. (Read APR versus APY: How The Distinction Impacts You to find out more about the interest on loans and how you can calculate this.)
In general, payday providers are less reliable than their counterparts in the commercial bank
In a sector where documentation is paramount, payday publishers can oblige borrowers to provide persooHazel Motesijke financial and identification information as part of their approval process. Because flash credit generates large profits for lenders without much demands on professional iHazel Motesog data, a lack of information security and the risk of fraud are also worrying aspects of payday loans. (Read how you can protect yourself and your loved ones against financial fraudsters, read
Stop scams in their tracks
Paltry Sums With all the opponents of the payday loan , the size of most flash loans seems of little importance. But when you consider that most payday lenders usually don’t authorize more than $ 400, their utility – especially if someone is worried about making car or mortgage payments – is really in question. The small loans trade in the lenders’ favors in more than one way: smaller loans means more diversification of the borrower because spreading money over more customers means less risk. Limiting loans to small amounts can often hide how extreme the interest is.
Learn to live without it
Another major risk associated with flash credits is the risk of dependence. Can a payday loan yield you until the end of the month, but will the interest you charge on the loan become even more difficult for you the following month? A cycle of dependence like this can paralyze a person’s financial health. If this is the case, taking out a payday loan can have a lasting impact on your ability to get credit in the future. As payday loans become more commonplace and are handled by more established companies, some payday providers are starting to report to credit bureaus. Given the precarious nature of most payday borrowers’ finances, defaulting on your payday loan would be a permanent scar on an already weak credit score mean. (Recognize when it’s time to cut back on spending, read
Five signs that you live beyond your means
.) Better alternatives Payday loans are not the only solution for short-term Hazel Motesiquidity issues. If you need money and find that collateral and credit are not major problems, a conventional loan is the best scenario. If taking out a PersooHazel Motesijke loan is not a realistic option, ask your employer for a salary advance or visit oHazel Motesine lending communities such as Prosper. com can be a way to avoid a flash credit. Despite the old adage that warns against borrowing from friends and family, you might consider taking out a payday loan, especially given the redistribution options that are putting you in a deeper hole. (For related literature, go to
Get a loan without parents
Conclusion It is often a worst-case scenario to go to a payday loan, and it may be that a payday loan is your only option. If this is the case, it is important to consider your options and think about all your facts before you enter into a financial agreement that Hazel Motesijk probably benefits the house. You can also work on building an emergency fund, so that you have money available if fate strikes.