Payday Loans: What You Need To Know

A payday loan may be the answer for people with bad credit, but as with any loan there are pros and cons. While one the one hand you can get money quickly, on the other, they cost a lot. Still, they may be the only option for some people who need some emergency cash.

What are payday/advance Loans?

Payday loans are also called cash advance loans. They are small (up to $700), unsecured loans-meaning you can borrow without any credit or collateral. These loans are paid to you quickly, usually instantly or within 24 hours, and due to be paid back with your next paycheck. These loans are popular with people with bad credit or no credit. Anyone who can prove a regular monthly income with pay stubs or bank records can get one. Sounds convenient, right?  Let’s discuss the fees before you rush out to take out a loan for yourself.

Where do I find a lender?

You can find lenders at check cashing stores, pawn shops, banks and credit unions, “Lending” stores and online.

Are There Fees Attached?

Lenders charge either a percentage of the loan amount or, in most cases, a flat fee per $100 borrowed. A typical fee is $15 to $30 per $100. Keep in mind that these loans are usually due to be paid back in one to two weeks. This means that for a $400 loan with a $15 fee, you will need to pay back $460 in a couple of weeks.  If you can’t pay it all back out of your next paycheck and need an extension on the loan, even a one week extension, those fees roll over and you would end up paying $120. That’s rather expensive.

So, if you have an emergency and need some quick cash on a one time basis, a payday loan might work for you. Make sure you only borrow what you can pay back. Loans paid on time could well help improve your credit rating.