Payday loans are those short term and instant loans that are usually used to devour a rough spot. However, there are only some situations when these loans really end up being helpful. Before you decide to take a loan you must have a good understanding of its costs and risks. Here in this article we will discuss all about cash advance loan.
What are Payday Loans?
We can define payday loan as a small loan that helps you in getting rid of your temporary financial problems. Usually cash advance loans are short term loans like for two weeks or so for some few hundred bucks. In order to get this short term cash you need to make a check for that amount you are having a loan of and a fee. You might need to leave the check to the lender who will cash it once you get ready to repay the loan amount. If by any chance you can’t be able to repay your payday loan within its due date you can “Roll It Over” in order to extend your period. But in this case the additional fees on your payday loans keep accumulating. These cash advances are sometimes referred as “No Credit Check Loans”.
Cost and Payment
Payday loans are usually very expensive kind of loans. You eventually end up paying your repay amount in several hundred percent as APR. We can understand it by taking a simple example that you might need to $15 to $20 fee to borrow the loan of $100 for two weeks only. The Consumer Federation of America provides a nice calculation that shows the comparison of payday loans to the alternatives. In this calculation you will find that you would pay about 426% APR (annual percentage rate) on a payday loan.
Pitfalls of Instant Loan
The only essential pitfall with this short term loan is its higher interest rate or costs. Because of exceptionally high fees, these loans don’t assist you in solving your real financial problem. If you are actually facing any kind of financial difficulties, then payday loans is not the solution. It can only make things worse. You would pay a really high rate of interest to borrow a few hundred bucks and it means that your everyday expenditure is just going up. There are really very few situations when a cash advance helps you to get rid of your financial stress. For an instance, you might need some cash for urgent repair for your car in order to get back to your work and keep earning income. But you can’t think of these payday loans as a long term strategy because it will definitely pull you under.
Alternatives of Instant Cash Loans
Rather than using a payday loan, you can consider some of these alternatives:
- Open a saving account for an emergency cash fund
- Make a credit so that you can make use of it from mainstream lenders
- Have an open credit card for urgent or emergency expenses
- Try to obtain an unsecured loan or signature loan from your bank or credit union