Mortgage and Loan Strategies Part Four: Payday Loans

Payday Loans Payday loans are typically the loan of last resort. This type of loan is certainly the most expensive in terms of the actual cost to the borrower. Also, it is often the most difficult type of loan for some individuals to pay off in full without the need to acquire a new payday loan.

Payday loans also go by other names including:

• Cash advance loans
• Check advance loans
• Payroll advance loans
• Post-dated check loans
• Deferred deposit check loans

No matter what name is attached to this type of loan, the terms are similar and the cost is just as high.

What is a payday loan?

A payday loan is a loan in which an individual borrows a small amount of cash, typically, a few hundred dollars for a very short time. In general, most payday loans have a term or payback term of two weeks. Unfortunately, payday loans typically carry very high fees.

Why Does Someone Need a Payday Loan?

Unexpected layoffs, medical costs, dental bills, or car repairs can put a dent in someone's weekly finances. Sometimes living from paycheck to paycheck in an effort to get by simply isn't enough when a major, or even a minor, expense comes up.

Additionally, people who live above their means or spend more disposable cash than they have often find themselves in a situation where they do not have enough cash to pay for necessities for the following week. The money has to come from somewhere and a payday loan can be quite appealing.

Where Can I Get a Payday Loan?

Payday loans are available at check cashing companies, local bank branches, and some small lenders. Additionally, some online finance companies provide payday loans to individuals who are able to provide a valid bank account number for repayment.

What Do I Need to Acquire a Payday Loan?

• Proof of employment
• A personal check or a bank account number that can be used electronically

Typically, the only thing required to prove that you are employed is a current pay tub with your name on it. The check must be from your bank account and will be used to cover the loan and all of its fees. If you provide a bank account number, it must be to an account that will have sufficient funds to pay off the loan on its closing or ending date.

How Do I Get My Loan Payday?

Payday loans are available at many locations. In fact, several smaller agencies are set up for check cashing and providing payday loans. The borrower simply brings the required information as indicated above to the location that he or she has selected.

The borrower indicates the amount that he or she wishes to borrow. The lender calculates the fee, adds it to the borrowed amount, and provides the number to the borrower.

The borrower must then write a check for the total amount and post date it for the due date of the payday loan. If the borrower is not writing a check, then the bank account number and routing number must be provided. These numbers will be used to withdraw the repayment funds electronically on the due date. The borrower must also sign a loan agreement, which is legally binding, in which he or she agrees to repay the loan on the due date.

What Kind of Fees Apply to Payday Loans?

The fees charged for payday loans vary across lenders. However, typical fees include either a flat fee per specified amount of borrowed money or a predetermined percentage of the total amount of borrowed money.

The APR, or annual percentage rate, must be disclosed by the lender, as provided for by the Truth in Lending Act. The annual percentage rate is the total yearly cost of the loan expressed as a percentage.

Many lenders of payday loans allow the borrower to roll over the loan in the event that they are having difficulty paying it back. However, the borrower should be aware that the fees attached to the loan are charged each and every time that he or she rolls the payday loan over.

Payday loans have several disadvantages. In addition to the fact that they are a temporary solution to the cash flow problem, they can be quite addictive as a quick fix. Also, they have extremely high fees attached to them.

A Few Final Points about Mortgages and Loans

Mortgages and loans can be extremely helpful in acquiring personal property and possessions, as well as paying the bills. It important to realize, however, that along with the ability to purchase something comes the responsibility to handle our finances properly.

Payments for a mortgage, vehicle loan, personal loan, or payday loan should always be paid on time. If you repay your loans on time and in full, then the next time that you apply for a loan, you should have no problems.

Continue reading: Mortgage and Loan Strategies Part One: Mortgages and Home Loans