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Saturday, April 30, 2011

Are Payday Loans Really a Valid Option?

Have you ever found yourself in the middle of a financial crisis? I don’t mean not having enough money to get that new part for your car – I mean a medical emergency or a complete vehicle breakdown. Life is extremely unpredictable, and when it hits you right in the finances, you might find that your options are severely limited.

Are Payday Loans Really a Valid Option?
This is the situation I found myself in a few months ago. Our family had never been well off, but we never really experienced any serious financial issues, either. We weren’t exactly getting ahead on our finances, but we weren’t falling behind either. We had learned to live within our means. At least, we did right up until the van broke down. The mechanic gave us a much more technical definition of the phrase “broke down,” but all I know is that it involved steam pouring out from under the hood, strange sounds and lights going off everywhere, and a lot of money.

We had been doing what we could to keep our heads above water, but this little experience could have pushed us under.

We had heard about payday loans and getting a cash advance on your next paycheck, but we were hesitant to go that route. However, when you have four kids who need to be to school, baseball, music lessons, and countless other places, we needed an immediate solution.

What Payday Loans Are

A cash advance is meant to help people get through these unexpected difficulties. The loan amounts are usually comparatively low – somewhere between $100 and $1500 dollars – and the interest rates are extremely high. They do this to compensate for the short loan period (usually a few days to a few weeks). If they were to charge the same interest as a regular credit card, they would likely only make a few cents for every hundred dollars they loaned.

Payday loans can also be acquired much faster than normal bank loans. You won’t need to have collateral or cosigners to secure a small cash advance. All you need is a verifiable form of income, an active checking account, and valid driver’s license. (Of course, this could change depending on your state’s regulations.)

What Payday Loans Are NOT

Payday loans are NOT a long term solution to your financial difficulties. They are NOT something to be taken lightly. Most importantly, this is NOT a way to buy that nice home theater system you have always wanted. When you start down that road, that’s where you will find a lot of trouble.

Intelligent Consumerism

With so many scary stories out there about people getting caught in a cycle of endless debt with these lenders, we wanted to make sure we knew what we were getting into. We understood that the loan rates and fees were going to be much higher than a bank loan, but we also knew this was the only way we would get the money we needed fast enough. We went with a company that prominently displayed exactly what its rates were so we knew what we could afford and we knew they followed the current regulations. Then we promised ourselves that we would not roll over the loan to another pay period. We’d pay it off at the first due date so that the huge interest rate wouldn’t have a chance to really kick us while we were down.

A lot of people, I think, get into to trouble because they don’t believe a $300 loan is a big thing. They think it won’t hurt if they put it off for a while, but that is where things will always get out of control. Make no mistake: these lenders charge huge interest rates, but if you look ahead and pay it off at the due date, you can get the money you need when regular banking isn’t an option.

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