A payday loan is a small, short-term loan that helps a person get by until his or her next paycheck. They are small loans with high interest rates and no collateral. Most of the time, these loans are paid back in cash. On the due date, the lender either cashes the borrower's check or takes money out of their checking account.
How it works:
In many U.S. states, it is against the law to charge interest rates that are higher than the annual percentage rates. If you need a payday loan, for example, you would have to write a post-dated check for $315 to borrow $300 for two weeks. The extra amount is the interest, and the lender will promise to wait until your next paycheck. If you don't pay back the loan, the lender can cash the $315 check. Most states don't allow rollovers because the fees keep going up and the cost of doing so. In the United States, thirteen states have banned this kind of pay check.
Lenders:
People often say bad things about these payday lenders. They are called "ruthless loan sharks" because they target low-income areas and people who don't understand how money changes over time. Many people think that the high interest rate on payday loans hurts the poor while people with more money can pay up to 25 percent interest on their credit cards.
If you want to take out a payday loan, you need to be very careful. Sometimes, after writing a check for $350 in exchange for $300 in cash, you may not be able to pay back the money in the allotted two weeks. If this happens, the rollover loan will begin, and you may end up paying as much as $500, plus the original $300. On a very small loan, some people have even been charged interest rates as high as 1800 percent. The police are now trying to find these loan sharks who charge interest rates of around 700 percent.
A survey found that the payday loan company doesn't make much money after taking out the fixed costs of running the business and the money it loses when people don't pay back their loans. There have been times when borrowers put up fake checks as security, which caused the check to bounce.
Payday loans can save you:
If it were possible to know or plan for financial emergencies, there would be no need for payday loans. Many times, you may find yourself in situations you didn't plan for, and you may not be ready to handle them. For example, if you get sick or your car breaks down, you would have to adjust your monthly budget. So, in situations like these, payday loans are a great help because you can get cash right away. You can even apply for it online, and the money will be sent straight to your bank account.
It's just not possible for people to plan for every dollar and every step that life takes. If you're on a tight budget, you know that you might have to pay for things you didn't expect.
