Payday Loans, A Viable Option?
What are payday loans? Payday loans are short-term loans that
are extended between two pay days. A payday loan is normally
provided for 14 days. The borrower, on acceptance of the loan
conditions, provides a check favoring the lender as security
against the loan. On the due date, the lender deposits this
check to recover the loan dues. The due date is generally the
next pay day of the borrower. No credit checks are conducted for
granting payday loans. Therefore, the FICO score of the borrower
is irrelevant. It doesn't matter whether the borrower has a bad
credit history, or has no credit history, or has declared
bankruptcy. Qualifications for payday loans To qualify for a
payday loan, the borrower needs to fulfill all of the following
conditions. There are no exceptions. * You must be a US citizen.
* You must at least 18 years of age. * You must be at a full
time job currently and must be at this job for at least three
months. * You must either have an active checking account or a
savings account. * Your after tax salary should be at least $
1,000 or you must have a fixed income of $800. Cost of payday
loans Payday loans carry a very high cost. Generally the lender
fees for a $ 100 payday loan is anywhere between $15 and $25. It
should be remembered that this fee is for 14 days as the loan
itself is extended for these many days only. If one considers
the cost on an annual percentage rate (APR) basis, the average
is 391%, which by any standard is exorbitant. By law, it is
mandatory for the lender to specify the APR to the borrower.
Many lenders do compare the cost of payday loan against other
forms of financing; but the common denominator of such a
comparison is that all of them are very expensive. When to avail
of payday loans? Payday loans should be availed only during
emergencies. Considering the fact that the cost of carrying a
payday loan is very high, it should be a resource of last
resort. If one implements good budgeting techniques and has a
good financial plan, the need for borrowing by way of payday
loans can be minimized. Moreover, one must ensure that a payday
loan is paid on time. Payday loans should not be rolled over or
extended as within no time the borrower will find himself or
herself in a debt trap where money may have to be borrowed just
to repay the interest. Profile of a payday loan borrower * A
typical payday loan customer is between 25 and 40 years of age
with an annual income anywhere between $ 25,000 and $ 50,000. *
According to the US Census report of Year 2000, the results of
the payday loan borrowers survey are: 22% of those surveyed hold
a bachelor's degree. 51% of those surveyed have a retirement
savings plan. In excess of two-thirds of those surveyed have a
savings account. More than two-thirds of those surveyed have an
annual income of at least $ 25,555.
Why are Payday loans popular?
They are popular for a number of reasons such as: * Credit
checks are not required. The personal check that you make
payable to the lender acts as security. * Approval is quick. If
all the necessary documents are submitted, your loan application
maybe approved in minutes. * The paperwork involved is simple.
Generally one or two documents would suffice which explains the
loan process and your obligations. * The repayment process is
without hassles. The check submitted as security is encashed on
the next payday by the lender. You could extend the loan to
subsequent paydays for a fee. However this is very expensive. *
Easy availability. Payday loans are particularly appropriate for
emergency situations provided the amount required is small and
one is willing to bear the high cost of the loan.
In summary, payday loans might be a viable option if you need
cash and need it fast. You still should be careful who you are
working with to obtain your loan. If you don't need money right
away, there is probably a better solution for you.