Payday Loans; Responsible Use is Essential

By Sharon Secor, Staff Writer

There are times when a quick cash loan – one like a payday loan that does not require collateral to secure it -- can be a big help. One advantage to a payday loan is that this is a lending choice that is available even to those with bad credit or no credit. However, this type of quick cash loan does have a significant disadvantage that should be factored in. This can be a costly loan, especially if the repayment schedule is not adhered to precisely, because the associated interest rate is high.

What a Payday Loan Is and How It Works

With a payday loan, you can borrow a comparatively small amount of cash, usually ranging between $100 and $1500, quickly, even with a bad credit history. That’s because this short-term personal loan, typically until the next paycheck arrives or for a two week period, is based on employment and income. Payday loan interest rates are significantly higher than other borrowing choices. However, some consider the higher rate of interest to be the cost of convenience.

While the payday loan process may differ in detail from lender to lender, overall, the general requirements and processes are fairly similar. You must be over 18 years of age, have verifiable employment and income, receive a paycheck at least every two weeks, and have a bank account. The funds are usually made available via direct deposit, a check or, when a payday loan is applied for in person at a place offering such loans, in cash. With the fax-less payday loans, the money can be in your hands in an hour or two, and with the more typical sort, you can have the cash you need within 24 hours.

The loan is often secured with a check that is dated for the agreed upon repayment date. An alternative means of repayment is to authorize the lender to withdraw the amount electronically from the bank account on the due date. In addition to the amount borrowed, there will also be a fee and interest to pay.

The interest rate on these loans can be steep, and running the numbers on this short-term loan can come up with annual interest rates around 400 percent, and much higher if the loan is not paid in full by the original due date. Because of the high rates of interest, payday loans are outlawed in some states and strictly regulated in others. Many states do not place heavy restrictions on these types of loans, leaving it to the borrower to decide whether or not the loan is worth the costs.

Responsible Use, Not Abuse, Of Payday Loans

Because this is a costly sort of loan, it is one that needs to be used with care. There are circumstances in which you are best served by being able to have fast cash, and because this type of loan is available even with bad credit or no credit, for many it can be the only viable option in an emergency.

Using this type of loan responsibly is very important. It probably isn’t a good idea to fund impulse purchases with this sort of loan. Nor is it a great idea to take it on if there is a good chance that repaying it on time will be a big struggle, otherwise you may find yourself just increasing your financial difficulties, causing more problems than the loan helped to resolve. With that said, however, this type of quick, short-term loan can be the right solution for a variety of financial situations. Run the numbers and give the matter consideration before making your move.

Payday loans can offer a quick and convenient borrowing opportunity and are an especially valuable resource for those who have bad credit or no credit and, thus, have fewer borrowing options. When used responsibly, a payday loan can be a real help in managing a difficult financial situation.