payday loans

Payday Loan: A Curse Or A Boon?

The stark contrast between the day you get your salary and five days before you are to receive your salary is second to none. It’s like the difference between the sun and the moon. The day you get your salary you shine like the sun but on the 25th day therefrom, you are like the moon, with no light of your own. To provide you with some light, we have the payday loan.

Payday Loans are emergency loans that are short-term in nature and being short-term, they demand a very high rate of interest. But be careful, you may end up paying more than what you bargained for.

Any short-term proposition demands caution and payday loans are no different. Sometimes the interest that you will pay may range up to 400% of the principal amount. If this is not serious enough for you, then nothing else can ever be. The fees of a payday loan vary from state to state. Many states have a ceiling limit for interest chargeable on such loans.

How do they work?

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Suppose your refrigerator stopped cooling and you realise that you are out of money. After a bit of introspection, you decide to borrow £200 for the repairs in form of a payday loan. The lender will demand a post-dated cheque of £240 (interest of 40) payable to him after a certain time period, mostly 14 days. You bear £40 as an interest for merely 14 days. After 14 days, the cheque is honoured and the amount is debited from your account.

Benefits

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Most people who avail a payday loan does it because of it’s processing speed.  It is processed almost immediately and you will have the money within an hour or so. It is very convenient to receive. The process is completely online and no appointments are required for its approval. Another main benefit is that it doesn’t have a bearing on your credit score. So if you have planned a house loan in the coming months, don’t worry, a payday loan won’t hamper your party. It requires no collateral and is very easy to avail. You just need to show a proof of regular income and your age must be above 18 years.

Disadvantages

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It has been rightfully said that every dark cloud has a silver lining. Let me break the news to you – the payday loan is the dark cloud here. You must repay it as soon as possible. It’s very costly to hold on to a payday loan for long and try to not make this a habit or else you will certainly make a fool of yourself. These can kill your future dream of owning an expensive SUV.

Usury Laws

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Usury laws define the permissible lending amount and the maximum interest chargeable. Many states like New York, have banned payday loans for the benefit of the society and its people. Some states have put up a ceiling limit on the interest chargeable for the loan. The consumers must be aware of the disadvantages of the payday loans and ignore it at all costs.

Alternatives

There are several alternatives that you may find more feasible than instant payday loans –

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  • Asking for an advance from your employer.
  • Using overdraft facilities available in your bank.
  • Providing discounts to your debtor for immediate payment.
  • Requesting time for payment from your creditor.
  • Taking a loan from any of your family members.
  • Apply for a traditional loan.
  • Use your credit card for a cash advance.

Even after going through all these options, if you find it impossible to pay the required amount, then you must take a payday loan. But before you avail it, make sure you promise yourself to not use it unless you are in a dire emergency. With this thought process in mind, start preparing for such emergencies. Also, make sure of clearing off payday loans as soon as you get the salary.