Payday Loans – A Viable Alternative to Traditional Bank Loans
Payday loans are designed to meet short-term financial needs. However, there are often fees involved that can be quite significant when the loan is rolled over repeatedly. The good news for borrowers is that when they take a responsible approach to borrowing cash they can easily meet their immediate financial needs in a fast and efficient manner. Before taking out a loan, borrowers should spend some time learning about how payday loans work and whether a short-term loan can meet their financial needs without leaving them in a financial bind.
Payday Loans Enable Borrowers to Quickly Meet Urgent Financial Needs
Payday lenders offer potential borrowers an opportunity to get an advance on their next paycheck. The borrower’s goal is to pay back the loan on their next payday, according to the terms of their contract. When handled in that manner, many people find that they can easily conquer minor financial hurdles as they come. The process for obtaining and paying back a payday loan is as follows:
- The borrower provides a post-dated check made out to the lender for the amount of money they need plus the predetermined finance charge required by the lender. For this reason, those without a bank account cannot qualify for a payday advance.
- Once the borrower presents the check to the lender, they receive the agreed upon loan amount in cash from the lender. The lender holds the check until the borrower’s next payday.
- Rather than cashing the check or making a deposit into their bank account, the lender simply requests that the borrower come in on their payday and pay the full balance of the loan, plus the finance charge, in cash. Then, the lender can return the check to the borrower, and the transaction is complete.
What if a Borrower Cannot Afford to Pay Back the Loan Without Requesting Another?
One of the potentially risky things about taking out a payday loan is that there are provisions put in place for allowing borrowers to take out multiple, consecutive payday loans. This is commonly referred to as “rolling over” the loan. Although this can help the borrower continue to meet their financial obligations, it is essential that he or she works hard to pay back the loan in full. The borrower should also strive to avoid taking out another payday advance in the immediate future.
Borrowers Can Avoid Repeated Payday Advance Rollovers by Taking a Few Extra Steps
One way a borrower can avoid the cycle of rolling over his or her loan is by gradually reducing the loan amount requested. For example, if the original loan amount is for $500 and the loan was paid off with cash on payday but additional cash is still needed, the borrower should take out a $400 loan at that time. Once the next payday arrives and the $400 loan is paid in full, the borrower can take out a $300 loan. By gradually reducing the loan amount at each interval, the borrower gains an opportunity to become debt-free in a short period.
What Should Borrowers Consider Before Taking out a Payday Loan?
As with any financial decision, there are a number of factors to consider before taking out any type of short-term loan. A few questions any potential borrower should ask themselves include the following:
- Will a short-term loan resolve my current financial problem?
- Will I have the means to pay back the loan on my next payday?
- What are the fees involved in getting the loan?
- What will happen if I cannot repay the loan?
Where Can Borrowers Find More Information About Payday Loans Online?
Whether a person is new to payday loans or they simply need a little more clarification about how cash advance loans work, they can find an abundance of information online. One excellent resource for gaining much-needed information about this topic is online at the Personal Money Store blog.