Pay Later? The True Cost of Payday AdvancesIn todayís current unstable economic climate, many people are finding themselves in dire financial straits. Young people who donít have a full time job, the newly unemployed, and families who are having trouble getting by will often turn to desperate measures. Whether itís putting food on the table or fixing a broken car part, many find themselves without the money to pay basic for expenses. .
A payday loan is essentially an early paycheck. An interested client will go to a payday loan establishment, fill out a brief application form, and, depending on credit history and the rules of business, will be approved for an early payment of his or her paycheck. Most of these businesses also require a paystub for proof of regular income. Many payday loan companies require few other measures, although most want to see personal identification and evidence of a checking account, besides proof of income. Essentially, payday loan companies, also known as cash advance companies, use the amount of a paycheck to offer a short-term loan to an individual. Some companies will cash a check directly to a prepaid debit card or offer to make payments to creditors to cover bills in order to make their services seem more alluring.
Although payday loans might sound useful and helpful in theory, as with most things that sound too good to be true, there are significant downsides to using such a service. For starters, most payday loan providers charge fees simply to apply for their services. While they may provide income in a moment of need, many payday loans must be paid back in two weeks or less, plus interest. Should financial hardship be an ongoing issue, this might put an individual in an even worse position than before. Additionally, the interest rates on payday loans are rarely favorable; they are generally extremely steep and result in a much larger repayment than the original amount of the loan. Many payday advance establishments charge additional fees on top of repayment and interest. Some charge fees of $15 to $50 upon successful procurement of a loan, while others charge massive fees and interest should an individual pay the loan late or in an incomplete amount. There are plenty of payday loan companies that claim there are no fees or that their interest rates are reasonable but this is simple misleading of people in need of money.
While a payday loan may seem like a simple solution to a critical problem, the cost of repaying such a loan might be in excess of 100% of the amount of the loan. For many people who truly need financial help, taking one payday loan out from a lender can lead to a vicious cycle of biweekly loans and steep fees. The true cost of a cash advance is not worth the immediate gratification of what seems like an easy solution. Financial hardships can happen to anyone at anytime but the costs of a payday loan far outweigh any possible benefit.