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Emergency Loans = Payday Loans

 

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By: Emily Ferreira, Managing Editor

Payday loans provide a great way for individuals in emergency situations to get a hold of fast cash.  These loans become very handy in instances where you may be stuck in an urgent crisis and need financial help to get out of the predicament.  Although quick payday loans are easily available to eligible borrowers, there are a few quirks that make these short-term loans a disincentive to use on a regular basis.  Payday loans are only a temporary relief solution and should only be used intermittently or for emergency situations.  The reason being is that the price of borrowing payday loans is exceptionally higher than traditional loans and can cause further financial problems if used incorrectly.   

An abundance of instant payday loan companies have been popping up all around the States making the availability of these loans more convenient and accessible to people in need of fast cash.  Lenders have also been finding new and better ways to simplify the application process and approval criteria to allow a wider variety of people to access payday loans.  Nowadays, you don’t even need to have good credit to be approved for a quick payday loan.  There are a variety of bad credit payday loans available in the market that target individuals with poor credit.  Although these loans are very useful in urgent situations, they should not be exploited on a frequent basis.

Let’s say, the transmission on your car has blown out, you only have $450 in your bank account, and your next paycheck is not due until next week Friday.  Your mechanic quotes a $700 cost to repair your transmission, but you simply do not have that kind of cash readily available.  You decide to contact a few friends and family members to see if anyone can loan you $300 (leaving $50 in your account for food, gas, etc.) but no one seems to be able to come up with the cash fast enough.  This is an ideal situation where you may be forced to turn to a payday loan lender for a quick payday loan.  Once your application is approved by a lender, you are then required to provide the lender with a post-dated check written out for the same amount of the loan you are borrowing plus any additional fees.  The application and approval process usually only take 24 hours, by which time the payday lender will provide you with the money you need to pay for the repairs on your car.  The payday loan agreement entitles the lender to hold your post-dated check for the pre-determined loan period, in this case, the lender will cash your check on the following Friday.  But, this quick and easy method of borrowing money comes with a catch – the interest rates and fees charged on payday loans are usually exorbitant!

Lenders claim that higher rates and fees are necessary for quick payday loans compared to standard loans, due to higher risk involved with payday loans.  Opponents disagree, stating that credit cards pose a higher risk than payday loans because they involve larger sums of money and yet, credit cards charge a significantly lower percentage of rates and fees compared to payday loans.  An instant payday loan with a two week loan term can be charged with an APR as high as 450%, whereas a 21% APR charged by a credit card company is considered to be very high and generally only applied to individuals with an unsatisfactory credit rating. 

Borrowers need to be extremely careful when dealing with payday loans. If you find that you are resorting to quick payday loans for financial assistance more than 2 to 3 times a year, this is a clear indication that you need to reevaluate your budgeting and spending patterns.  Payday loans should never be used for unnecessary expenses.  Although these loans can help people to avoid the harsh consequences of consumer debt, they can also bring about further debt if used inappropriately.  The high rates charged on these loans can quickly cause you to become dependent on payday loans and, before you know it, you’re stuck in a vicious cycle causing you to use one debt to pay off another debt.  This is why borrowers should only apply for payday loans if they are positive that they will be able to pay off the loan and all additional fees at the end of the loan term.

 

 
 
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