Building credit, especially when you’re young can be a major challenge. If your parents are unwilling to cosign, then even qualifying for starter credit cards and other credit-building opportunities can seem impossible. Vulnerably young adults fall pretty to high-interest debt products that suck gullible customers in with teaser rates and reward programs. Unfortunately, most customers that use these products end up abusing them. Sure, personal responsibility is important, and learning that lesson early on in life can be valuable, but when times are tough, finding available credit can be nearly impossible.
Enter the Payday Loan company. When all the other options are out of reach, payday loan companies go out of their way to advertise “quick cash” and always forget to emphasize the sky-high interest rates that accompany this “easy money”. So if you’re in a bind, and your credit situation is holding you back from traditional borrowing opportunities, take a hard look at the pros and cons of taking on a payday loan.
Con: Sky-High Interest Rates
Even the best payday loans have incredibly high interest rates. On average, you can expect to pay almost 400% to borrow money for just a two-week period. This means that for every $100 you borrow, you’ll pay around $15 in interest. If you run into trouble when it comes time to pay back those loans, you can expect to see harsh penalties. And that $15 you were paying for that two weeks, well the clock on that interest is ticking. 400% interest rates mean that if you borrowed $100 from me today, and failed to pay me back for an entire year, you’ll owe me more than $400 if your interest is only compounded annually. Depending on the terms of the loan, your interest rate may compound more than just one time per year.
If you do choose to go down the path of taking on a payday loan, read the fine print very, very carefully!
Pro: Quick Money without a Credit Check
For people in a serious financial bind, a payday loan may be the quickest way to get cash. If you’re worried about the electric company shutting off your lights tomorrow, visiting a payday loan location on your way home from work is an excellent way to get the cash you need to keep your power turned on. Of course, if you have other options available to you (a loan from friends or family, a traditional bank, or credit cards), then absolutely use those less expensive options first.
If your credit report is full of bad news, a payday loan may be the only option available to you. Many providers do not check credit history prior to approving a loan, so your chances of being approved is higher. However, you’re going to end up paying for the fact that they don’t run a credit check; in the form of extremely high interest rates and fees.
Con: Payday Loan Locations Are Usually in the Rough Part of Town
The first question to ask yourself before heading to a payday loan store is: do you have a concealed carry permit? Okay, I’m kidding, but seriously, a lot of the payday loan locations out there purposely put their storefronts in low-income, high-crime communities. Not only is their overhead less expensive, but they can enjoy being closer to their target clientele: low income, financially illiterate victims (err customers).
When travelling to a payday loan office, it’s best to leave the kids at home with a trusted babysitter. When leaving your vehicle, keep your head on a swivel and be alert of your surroundings. Be prepared to “buzz” the front door in order for the clerk to deactivated the security lock. Like I said, these places aren’t in the best parts of town.
Pro: Online Payday Loan Services Allow You to Skip the Car Ride
If you’re worried about your personal safety while driving into the low-budget strip mall where your payday loan office is located, turn the car around and use your computer to login to one of multiple online payday loan lenders. As long as you have a checking account that can accept direct deposit, an online lender will be able to overnight the funds you need, making them available for withdrawal from your checking account in less than 24 hours. Here are more links that review best payday lonas. Check the best no credit check loans from Elite Personal Finance or this one from The Simple Dollar.
The other plus of doing your application online is you’ll have more time to read the fine print. I know that in the heat of the moment, you’re in a rush to find out if you’re approved for the money you desperately need. But, slow down and take the time to read the terms of the loan you’ll be receiving. You need to understand the full weight of the financial decision you’re about to make. You might want to reconsider trading in today’s problems for tomorrow’s financial disaster.
Con: Fail to Repay and Expect Penalties and Another Ding on Your Credit Report
As I mentioned earlier, failure to pay back your loan when it’s due is a really, really bad idea. Not only will you be hit with NSF (non-sufficient funds) fees from your bank when the check bounces, but the payday loan company has the opportunity to apply penalties and additional interest to your outstanding balance. Remember that $100 turning into $400 earlier? Well, you can expect a lot of financial pain and suffering if you fail to pay back that loan on schedule.
Collection agencies are likely to get involved, and your phone will begin to ring mercilessly at all hours. The constant reminder via mail, email and phone will serve to add a major emotional burden as you stress about finding money to pay back the money you couldn’t afford to borrow before.
Payday loans can become a serious financial nightmare if you default on the repayment terms. Please, don’t take out a payday loan if you can find any other reasonable alternative. Talk to your bank or credit union. Your friends might surprise you and be able to help. Take the time to exhaust all other options before taking out a high-interest loan; and if you do take one out, pay it back on time!