My Insurance Insider and Finance Blog

Image via WikipediaNeeding quick cash?At first you may think of an easy option of getting a cash loan that will be paid off on your pay day check. Its Payday loan.Pay day loan, sometimes called paycheck advance or payday advance is simply a short-term cash loan to meet up borrowers immediate needs until his/her next payday.

Practically at times you may find it very handy on the floor of your grocery store.But just think, is it the only solution for your lack of fund given the fact that you need your essential stuffs?OK,I respect your feelings at this point of having a meagre fund.

But before go in further,I’ll ask you Why use a Payday Loan?

Some of you reason that paying your bill with borrowed money is still being a better option than receiving bad credit scores of not paying the bill. This is quite understandable. But have you ever think of the other side of the coin and estimate the impact it has on your other finances?

You may have credit card dues, home loan dues, car loan dues, your children’s educational expenses, and several other things. So, think twice about those before getting an easy money loan with high interest-rated, payday loan. Often those who are forced to take pay day loans are not able to repay the loan by the next pay check and that can lead to a cycle of debt and stress.

Then you may ask What would be the COST?

Typically it ranges between $100 and $500 for a week duration with an interest rate up to 400% APR. Several sources, including a consumer report by the FTC (Federal Trade Commission) and the CFA (Consumer Federation of America) state that at times APR could be as high as 650% up to 780%. A 780 % APR simply huge. Isn’t it?

A loan of $100 cost between $15 - $30. If you fail to repay by the pay date then it can be renewed for another period with a prefixed rate. So, if you renew it for another three renewals, it would cost you $60 as interest dues. And with 30% interest rate and 14 days period, if you renewed it for another 3 renewal, it would cost you a huge $90 with a interest rate of 780% Not a joke, right? Just check it out here.

Ask yourself Who is going to BENEFITED?

Now basing on the warnings issued by federal and consumer organizations, I would voluntarily say that adopting to pay day loans or cash advances from these sources can often lead to more debt and problems. Strangely enough, some online sources are reportedly letting the pay day loan to automatically roll over and they only withdraw the renewal fee on the pay date.What a trap!

Other sites as surveyed by the CFA, require customers to agree in contract not to participate in class action suits or to file for bankruptcy. Probably thats why in Canada a rate of interest charged above 60% per annum is treated as criminal offense (according to the Criminal Code of Canada). Many states in the US are also exploiting options to enacting strict laws to get rid of this debt menace.

For those who are having debt problems, I would recommend to seek no or low-cost credit counseling from a local non-profit organization. These organizations can help with reducing current interest rates and lowering monthly payments. If the problem is budget, you should look to a financial planner who can help you to manage the money you do have and avoid using credit at all.