This is the second article I write about payday loans or cash advance within two months. The first one – “What is Payday Loan and How Does It Works?” that I wrote has explained what that is and how the business works. This time I would like to focus on what the disadvantages that this type of payday loan bring to the borrowers.
Although I have been working in a payday loan company for more than 5 years, I still can’t tolerate or can’t get use to seeing how people are suffering from paying back their loans to their lenders. Here is a recall of,
What is Payday Loan (Cash Advance)?
There are different names used by the lenders trying to make their business sounds more legitimate. Payday loan, cash advance, payday advance are all refer to the same type of loan that is very costly. It is a short term small amount type of loans that doesn’t require a credit check as long as you have a valid check account and a stable income that pays you through direct deposit.
How does it works?
Say your car broke down and you need to borrow $300 from the payday loan lender for the repairs. You then need to write a post-dated check for $360(the extra $60 is the fee for getting the loan, it varies from lender to lender) to the lender for a two-weeks period. The lender will then lend you $300 and when the due date is up, the lender will cash out your post-dated check. However, if for any reasons you are unable to pay-off the loan at the end of the term, additional fees and finance charges may apply.
Who use this types of loans?
Generally, this is for people who doesn’t have good credit or even no credit because one of the advantages of this types of loans is not require any credit check. Most of the borrowers are looking for small amount of loan say $300 or $500 and this is not a typical types of loan amount that a normal bank will provide so this is another reason why a borrower need to go for a payday loan.
What is the advantage of payday loans?
Payday loan is for people who need the money fast say for example in an emergency situation. Most of the lenders can issue the money to the borrowers within few hours from they submitted their application. It is also benefit people who don’t have a good credit or even no credit.
What is the disadvantage of payday loans?
Extremely high fees and finance charges. In most cases, the average APR (Annual Percentage Rate) for a payday loan is about 400%. Some lenders charges even a lot higher from 600% or even go up to $1500%. Compare to a standard normal credit card rate 12%, this is definitely ridiculous. This is one of the main reasons why a lot of payday loan borrowers can not get out of the debt and ending break their bank account.
Should I get a payday advance?
Before you consider a payday advance, step back and see if you have any other options. Ask yourself if this is really an emergency situation? Payday loan is only good for a one-time emergency situation such as medical bill and you should pay it off as soon as possible before it rolling over to the next term. Using payday loans for unnecessary expense such as grocery, regular bill payments are not recommend due to the extremely high fees and finance charges. Again, think of an alternate way to get the fund instead of using payday loan may be the best idea.
To be honest, I see nothing good about payday loans and I will never recommend this type of loans to anybody because like I said, I have been working in a payday loan company for more than five years and I have seen enough people go deeper and deeper in debt. Filing lawsuit is not uncommon in payday loan industry because of the non-realistic fees and charges that bring to the borrowers. And because of so many drawbacks of this types of loans, payday loans already been banned in 13 states and I hope one day, the US government can make this industry totally disappear from our society.