So you need cash and you need it fast. There’s nowhere else you can go and you don’t have anything to offer as collateral. What do you do? For millions of Americans who experience the occasional need for some fast cash, pay day loans are a blessing. They’re easy to obtain and offer only smaller amounts, which make them perfect for temporary financial emergencies. But how do these pay day loans work and can they truly help?
Knowing pay day loans
As their name implies, pay day loans are loans you take out against your income. They are short-term loans that are available in smaller amounts (loan amounts can range from less than $500 to a little over $1000).
These loans do not require a collateral or security deposit. You simply provide the lending company with several postdated checks that they will simply encash when the date of your loan payment arrives. The loan payment is then effectively deducted from your monthly income.
What are the requirements for pay day loans?
Pay day loans are one of the simplest loans to obtain. Some of its requirements are simple: the borrower must be at least 18 years old at the time of the loan, he or she must be employed full time with a sufficient monthly income and have a savings or checking account. Pay day loans don’t require you to submit your credit report nor will your credit history be checked.
I have heard about the advantages. What about the disadvantages of pay day loans? Can they truly help?
As a quick fix for a temporary cash problem, pay day loans can help a great deal. You can even apply for and obtain approval within a short time, sometimes within a 24-hour period. This makes pay day loans ideal for times when you have immediate need for cash.
However, due to the fact that they are unsecured loans, pay day loans come with higher interest rates. They are also shorter in duration, with some loans requiring repayment within one week. However, most pay day loans are offered for a two-week period.
This is where a lot of people have trouble with. Many of those who turn to pay day loans almost always do not have the cash to pay back the loan amount and interest after just a week or two. If they can’t pay it back, lending companies often advise them to ‘rollover’ their loan amount.
The rollover involves an additional fee that you will have to pay for not being able to meet your obligation on time. This is usually a fixed rate but over time, this raises the interest rate of the loan amount. If the borrower again fails to pay, the rollover will happen again until the loan amount balloons to a very unmanageable figure.
I truly need cash fast but don’t want to resort to a pay day loan. Where do I go to for help?
Pay day loans are not the only solution to a cash problem. In fact, many lending companies encourage potential borrowers to fully understand what pay day loans entail and to exhaust other means before turning to this type of short term loan. These companies even discourage people from considering pay day loans as their last resort.
If you need money fast, there are other ways you can use for help. Some of these include: a personal loan from a family member or a friend, emergency cash loans from credit unions, banks and financial institutions or a cash advance from your credit card or employer.
You might also want to consider if there are items that you own that you could sell for cash and that might be enough to cover for your emergency expenses. If you can, you might also want to negotiate with your creditors in order to obtain more time for you to pay your bills. Your creditors would rather talk to you than go through a legal process to get their money back, so make sure you consider this option.
Pay day loans can be a big help when you are in a bind. However, like all loans, pay day loans must be managed well. They do, after all, have to be repaid with interest. Before applying for a pay day loan, determine whether they are the best option for you. If you look hard enough, you might find one or two other options that can work as well and is as easily obtained as a pay day loan.