Are Payday Loans A Good Choice?

Unfortunately most people know or have heard of a payday loan.  A payday loan or payday advance, is a small short term loan that is supposed to cover a borrowers expenses until their next payday.  These types of loans are also known as cash advances.  They don’t require good credit, and they usually do not even check your credit.  All you need is proof of employment.

The loans range is amounts from $100.00-$1,000.00 depending on each states legal maximums.  The average loan time is two weeks, but some will allow you one month to pay back the loan.  In Texas, the maximum finance rate and fees are $10.00 per loan + 48% annual interest. 

Many consumers get trapped in these loans by taking out a second loan to repay the first.  The loan company may call you or send you a letter stating that you have so much money available.  You can borrow this amount and skip the current payment. 

If you need to take a payday loan, make sure it is for something that can not wait until you get paid; like an emergency.  Borrowing money from a payday loan business for unnecessary things is only going to cost the consumer hundreds of dollars.

If you do take out a payday loan, make sure you read everything and understand it before you sign the dotted line.  Many payday loans want permission to take electronic payment from your checking account.  If you agree to this, they will deduct an agreed amount from your checking account on a certain date, even if the funds are not available.  Electronic payday loans can “bounce” costing the consumer bank fees.

Every online loan involves giving the lender you banking information, giving them permission to deliver the loan and to take payments.  This can be very dangerous and very costly.  Again, consumers can be charged bank fees for not having the funds available. 

Consumers have the right under either federal law or industry rules to stop a payday lender from withdrawing money from their bank accounts.  This does not settle the debt or cancel the contract, but it does allow the consumer to have control of their money. 

Although you have the right to revoke permission for payday lenders to withdraw funds from your account, it is not always easy to do.  The bank may not recognize the transaction or if you have other preauthorized debits for the same amount, the bank may mistakenly stop the wrong one.

The best way to handle a payday loan is try to avoid them altogether.  Only use them in case of emergencies and if you know within a shadow of a doubt you can repay it.