Payday Loans
- A Boon or a Curse!!
A
small temporary loan taken to bridge the borrower's cash flow
gap between paydays, is referred to as a payday loan. They
are unsecured, high interest short-term micro loans. These
loans are usually arranged in cash, and the lender processes
the check or takes out from the borrower's checking account
on the date of maturity.
Many states in the U.S have usury laws that prohibit interest
rates if they exceed the annual percentage rates. For example
if you need a payday loan, you would have to write a post dated
check for $315 to borrow $300 for a period of two weeks; the
extra amount being the finance charge, and the lender will give
you his assurance to wait till the next payday. If you fail
to repay, then the lender can deposit the check of $315. In
most of the states the rollovers are forbidden, as the financial
charge goes on increasing. In the U.S. this payday check has
been prohibited in thirteen states.
Lenders:
Quite often these payday lenders are criticized. They are called
the merciless loan sharks attacking the poorer section, low
income areas, who are unable to comprehend the time value of
money. Many people find the interest rate on the payday loan
puts the weaker section in difficulties, where the richer community
can afford to pay even up to 25% interest or so on their credit
cards.
You have to be extremely careful if you are planning to take
a payday loan. Sometimes after writing a check of $350 in exchange
for $300 in cash, things might come up and you might not be
able to pay back the money within the allotted two weeks limit,
thus the roll over loan will start and you may end up paying
as high as $500, and may still need to pay the original $300
amount! It has been recorded that some borrowers have even been
charged as high as 1800% interest on a very small loan. The
authorities are now trying to track down these loan sharks who
are charging around 700% interest rates.
According to a research survey it has been recorded that after
deducting the fixed operating cost and the default losses, the
payday loans company does not make much profit. There have been
cases of fake checks presented by borrowers as security, and
as a result, the check bounces.
Payday loans can save you:
Had it been possible to know or predict financial emergencies,
then payday loans would not have happened! Many a time you may
find yourself caught in unexpected situations and you may not
be well equipped to deal with the situation. Like when you fall
ill, or your car breaks down, you would have to bear on your
planning budget for the month. So for these kinds of situations,
payday loans are of great help as you can get instant cash.
You can even apply for it online, and the money gets deposited
into your account directly.
It's simply not humanly possible to plan for every penny and
every move life makes. If you're on a shoestring budget, then
you're aware of the danger of unexpected costs.
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Article by Stefan
Rockhaus. Visit payday
loans to read more about short term loans and payday loans
online. You may reprint this article as long as no changes
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