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Payday Loans: What They Are And How They Work

Mar 23, 2008
Have you ever been in a situation where you are saddled with large, unforeseen expenses and did not know where to find the money to meet those needs? Are you overdrawn and is your credit card maxed out? While you might have the option of borrowing from friends, not everyone is at ease with being indebted to family or friends.

If you're in a situation like this, perhaps the best answer for you would be to take out a payday loan (also known as a cash advance loan). It seems that everywhere you look these days you will see a commercial for a company who's offering a payday loan and more and more people are using these loans to get immediate cash to take care of their urgent financial obligations.

Before you commit to a payday loan, you should know precisely what they are, how they work and how borrowing from one of these lenders can affect you long term.

What is a Payday Loan?

An online payday loan is simply a small loan made by a third party company that uses your current wage earnings and checking account as evidence that you will be able to repay the loan. Most online payday loan companies will require recent check stubs that prove you earn a certain pre-determined minimum amount each month. They will also need evidence that your checking account has been open and is in good standing for at least a month. An online payday loan can often be the fastest route to getting the money you need for an emergency situation.

Have a look at this example:

Sandra hasn't had the best month. A week ago she was surprised with a gas bill that made her wonder if she was supplying heat to the entire neighborhood. As a single mom of two she is already overextended as it is, and she's still trying to pay off what she spent at Christmas. Before she could take a breath and ask "what's next?", she took the car for an oil change only to find out that she had much greater problems than dirty oil. When the estimate comes back, she looks at the numbers with tears in her eyes wondering how she can possibly afford to fix her car when she doesn't get paid for another week and a half. She doesn't have any friends or family to help her, and if she can't drive to work she's going to lose her job.

Instances like this happen every day to hundreds, possibly even thousands of people all over the country. Hard working people are caught by surprise by bills when they least expect them. They don't need a handout, just a little boost to get them through a week or two until their next paycheck. Thankfully with the online payday loan, it is now easier than ever to get over that little hump. If you can meet the minimum requirements to apply, you can often be approved for a payday loan in a matter of just a few minutes, and your loan will be available to you within twenty-four hours in most cases.

Most often all that is required is that you be at least eighteen years of age with a checking account and a stable, verifiable monthly income. There is usually no credit check required with payday loan companies and you will be able to get an advance loan of anywhere between $100 and $1,000, sometimes even more. You should never borrow more money than you truly need to meet your obligations.

Advantages of taking Payday Loans

Some of the advantages of taking payday loans include:

- They are hassle-free;

- The process typically takes less than half an hour;

- It is available in an emergency without having to put up any security;

- The proceeds of the loan are deposited automatically into your bank account less than 24 hours after approval; and

- It is discreet; no one has to know that you experienced a financial crisis.

Cost of Taking Payday Loans

Let's face the facts here -- payday loans are not free. These companies are in business to make money and make money they do, generally charging a fee starting at about 25% on average. On first glance that doesn't seem like much -- you pay $25 to borrow $100. They usually come due in two weeks at which time you can either pay off the loan or extend it for a longer period. Be mindful that extending your loan will increase your fees, so you need to be careful that you don't get caught in the trap of constantly renewing a payday loan out of convenience. With most cash advance loans carrying an annual percentage rate (APR) of 650% or more, when the fees catch up to you it will be anything but convenient for your budget! It is important to pay your payday loan off as soon as you can.
About the Author
Want to find a good, reliable lender for payday loans? Let http://www.HotFastCash.com help you sort out the good payday loan lenders from the bad. HotFastCash.com is a comprehensive source of payday lender reviews and lending information for consumers.
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