Loan Articles

This question seems as if it would have an easy answer. Everyone knows horror stories about a payday loan that turned into a debt double or triple the original loan amount, with interest rates so high it was impossible to keep up. We’ve all been told that behind the innocuous face presented in advertisements is an evil, ravening beast hungry to gobble up every cent we have and then some.

The other side of the coin is the friendly faces and voices in television, radio and Internet advertisements telling us how helpful the loan was-- just the thing needed to get over a rough patch. We hear how easy the loan was to get as well as pay back using a simple, online application.

Both of these scenarios are true. The best advice about a payday loan is the same as advice given about any other method of borrowing of money: If you can get by without doing it, do so. Unfortunately, life isn’t always that simple, and the times are long gone when your child’s soccer registration fee could be paid off by selling Aunt Molly’s old sewing machine that you never use. Sometimes a payday loan is the only way to get through until the next paycheck.

That being said, there are certain absolutes. These loans require no collateral or other security beyond proof of employment and a personal check, which means that the risk to the lender is as high as it is to the lendee. This often leads to disproportionate interest rates that attempt to offset the high risk as well as increase the profit made by the lender. So, the first rule is “never borrow more than you absolutely need.”

Actually, that should be the third rule. The first is “don’t borrow for everyday expenses.” If you cannot cover the regular bills you will have in a month, the fast cash of paycheck loans will become an ever-growing pile of debt, and there are plenty of unscrupulous lenders out there ready to take advantage of that. If, however, the payday loan is for a one-time expense, then a cash advance may be the way to go.

This leads to the second rule: “Research!”

There are numerous payday lenders out there. This industry has been largely unregulated, which means that they have wide discretion regarding interest rates and other terms. Even though the need for a loan is likely to be an urgent situation, the benefit of doing some research into the varying rates, terms and reputations of different lenders can be invaluable.