Choosing to take out a payday loan can be a difficult decision. There are many people who say that these short term loans are not good for your continued financial health due to fees and interest rates much higher than other traditional financial assistance products. When you are facing a tough money problem, though, these loans can offer much-needed relief.
The Basics of a Payday Loan
Payday loans are different from other types of loans or advances in specific ways. They are a specialized form of money borrowing that allow you fast and easy access to the money that you need.
Payday loans are small sum loans. They are a percentage of your average income according to your pay period. You are allowed to borrow only the amount that you will be able to repay by the repayment date. These loans are short term. The repayment date is when you will receive your next paycheck, so the length of your loan will be from the time that you borrow the money to the day that you get paid again. For some people this is a week, for others it is up to a month. The length of your pay period will also impact how much you are able to borrow. Payday lenders apply fees to the amount of your loan that are payable upon repayment of the loan. These fees are charged for the convenience of borrowing money as easily as payday loans can be borrowed. Some lenders charge fees as a percentage of your total, others charge a flat fee per $100.These fees compound should you ask for an extension on your loan. Lenders also charge interest based on the total of your loan. This interest is the highest among loan products.
Alternatives to a Payday Loan
For many people there are alternatives to taking out a payday loan that may represent better solutions to financial difficulty.
Traditional loans taken out from banks or other financial institutions can provide higher sums, for longer periods and with lower fees and interest rates. Some employers allow you to take an advance on your paycheck. This works in much the same way as a payday loan but there are no fees, interest or repayment attached. Instead you simply will not get that amount in your next paycheck. If you have a life insurance policy that has a cash value component you have the option of borrowing from the accrued cash value amount. This will reduce the death benefit available but can be repaid in your time to reinstate the full amount.
Why They are Good Options
The alternatives to payday loans are not options for everyone. Bad credit, lack of financial history or other factors may prevent you from having access to these other forms of funding. These loans do not have credit requirements, nor do they require you to have a longstanding relationship with the lender or another affiliate. These loans can be enacted quickly, often within 24 hours, so have will have the money that you need quickly and easily. This makes them an excellent option when you are facing a hard time with seemingly no other alternative.
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