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How Much Do You Know About PayDay Loans?

December 14, 2007

Most people have heard of payday loans. They are well spread over the internet in a plethora of small ads on blogs and websites everywhere. However not everyone is aware of exactly what payday loans are. In this article, we’ll try to demystify payday loans by explaining what they are, giving an idea of the fees you might incur (which are relevant at the time of publishing this article, November 30th 2007), who may need a payday loan and some tips on the right way in which to use a payday loan. So what exactly are payday loans? Well, payday loans are basically small cash advance loans. Often these loans are secured by the borrower, by writing out a post-dated cheque for their next pay day as collateral. Payday loans can be very useful in certain situations, although caution should be observed when making the decision to borrow money in this way.

What fees should you expect to be paying for payday loans? Well, fees can vary enormously between lenders but they usually fall between $15 and $50. The borrower is able to obtain an amount of money to cover an emergency or money shortage. This is meant to tide them over until their next pay day. If a borrower should decide to extend their payday loan for an additional fortnight, they will be charged a second fee at the same rate.

Who needs payday loans? The need for these kinds of loans has been created as a direct result of lending institutions such as banks and major finance companies declining to lend smaller amounts of money with similar terms. The downside with payday loans is the interest rates, which are extremely high. The amount of interest calculated is often as much as 300% per annum.

Borrowers can fall into the trap of taking out payday loans once every fortnight in order to stretch their income still further. In this scenario, payday loans make very poor choices. People who get caught up in this trap of borrowing money continually from payday loans companies and rolling the money over more than once run a great risk of spiralling ever deeper into debt.

So is there a correct way to make use of payday loans? Yes, of course there is! When borrowing from a payday loan company, always ensure that you understand what the associated costs are and only ever take on out in an emergency, where the preferred options of asking friends, colleagues or family members if you can borrow money from them and writing them a post-dated cheque is not available.

It is important to always take care to ensure the payday loan company you choose is legitimate. A leading cause of fraud comes from disreputable companies who pose as legitimate payday loan companies. It pays to research the company first. Find out where the company is situated and get their official address as well as their phone number and try ringing it, too. Research the internet for reports or information about the company and try to obtain information from other people who have borrowed money from them in the past.

Beware of payday loan companies that ask a fee up front before they will forward the money to you and avoid revealing your bank account number if you can. It is better to opt for a wire transfer from Western Union rather than give out bank account details if you are unsure of the bona fides of a payday loan company. Be aware that there are some payday loan companies that are scams. When you borrow money, it is at your own risk, so observed caution when choosing your payday loan company to ensure it is legitimate.

In conclusion, the best way to deal with any payday loan company is to ensure you understand how their fees and charges work. Be sure you know exactly how much it will cost you to borrow the money and what could happen if you are unable to pay it back after payday. Lastly, be very choosy with payday loan companies and shop around as some offer you better deals than others.

by Terry Didcott

Written by · Filed Under Payday Advance, Personal Loans 

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