Evaluate all your options before settling on payday advance loans; these should be a last resort. But some people, including our contributing writer, Alexis A., have found them useful. Enter into a payday loan arrangement with your eyes wide open.
You see a lot of negative press regarding the payday loan industry. There are Internet articles, print ads and even government initiatives all aimed at regulating this industry. As a consumer of these loans from time to time, I often wonder how people become “trapped” in the vicious cycle created by payday lenders and where personal responsibility comes into play.
An Alternative To Payday Loans
Before I go off and defend my own use of payday loans, I would like to state that there are other personal loans you can take that are infinitely cheaper than cash advance loans. There are requirements you need to meet in order to qualify for such loans though — first, for the cheapest, unsecured loans available, you’ll need to have good to excellent credit, and you may also have to wait a little to get such loans funded. I’m talking about peer to peer lending loans, which offer very affordable rates depending on your credit history and background. You can read more about them in our review of Lending Club, a premier peer to peer lending network, as well as in this report on well-known peer to peer lending sites.
Are There Benefits To Payday Advance Loans?
Now let’s move on to payday loans, which I’ve taken out on a few occasions. In my experience, these loans have been a lifesaver in many situations that have arisen in my adult life. They’ve helped me cover some unexpected travel expenses, medical bills, and simple budget shortfalls thanks to some shoddy accounting work on my part. I know going in, that borrowing $200 is going to cost me $230 in a matter of a few short weeks. I also know that if I choose to re-borrow that money it’s going to cost me $30 again and again, until I stop borrowing. I can’t emphasize enough that one should be fully aware of the consequences of such expensive loans before signing up with a lender. Don’t apply for a loan like this unless you first have a plan for paying it off completely and rapidly.
Now the biggest draw for me is the ease in getting a loan like this and its relatively low cost in comparison to what my bank would charge me if I bounced a few checks. Some bank fees are quite steep and can catch you by surprise. I mean, for a $200 payday loan, I will pay the payday lender a fee of $30. But if I managed to overdraft my bank account for $200, the minimum it would cost me would be $36, or the cost of one overdraft fee. Of course, this cost goes up based on the number of items that clear my account while it’s in the negative, at the rate of $36 a pop.
Payday loans are also exponentially cheaper than a pawn loan, title loan or even some personal loans and has the added benefit of being unsecured, meaning that I don’t have to give up any personal property in the event I default on the loan. People complain about the low loan limits, but I’m grateful for the limits. It makes them easier to pay back when they’re due. And this is the goal, right? To pay off the loan when it’s due and not renew it for another and then another and yet another term after that.
The main point most people miss when it comes to taking out a payday advance loan is that it is a short term solution. Yes, the interest rates are astronomical, but you’re not paying for this loan over a year. You pay it back in a matter of weeks. The idea is to cover a financial emergency and then pay off the loan as quickly as possible.
I believe that payday advance loans are extremely powerful financial tools if used properly and with care. But take note that this financial tool should be recognized as one that carries a higher risk than other products, given the problems numerous borrowers have faced. Still, eliminating these products from the marketplace will take away a viable short term solution for a wide range of customers, many of whom are responsible but who may lack other financial options. I would personally be placed at a disadvantage if the current administration achieves their goals to effectively eliminate payday loan companies from the marketplace.