Online Financial Advice

Legitimate, Legal and Undesirable

We live in an age of scammers. There are folks pretending to be Nigerian princes, people accepting donations for fake charities and identity theft. These practices are illegal, and law enforcement sometimes have a hard time just keeping on top of complaints, much less catching the crooks that perpetrate these crimes.

The payday loan area is no different from other areas in that there are scammers pretending to offer a real product but who are actually just trying to steal your money. Unfortunately, some people come to believe that all payday loan businesses are shady, and are part of a scam.

Of course, you need to recognize when you’re facing a scam. Any time that someone asks you to give them money before they give you a loan, you might be facing a scam. The one obvious exception is a home loan, where you have to pay closing costs and such associated with the mortgage before it’s all finalized.

Payday loans for people with bad credit are legitimate, and in most places they are legal. Having said that, they’re also undesirable. If you can avoid taking a payday loan, you should.

Why is that, exactly? Well, payday loans charge extremely high rates of interest. The percentage you pay for a payday loan is likely to be as much as ten times or more then amount of interest you’d pay on even the highest-rate credit cards.

Another reason payday loans can be undesirable is because the term is so short. At first, this seems like an advantage. The short term means there is less interest charged, overall. The problem is that most people who take out a payday loan do so on the same loan more than once. On average, it takes three pay periods for a payday loan to be paid off, which significantly increases the amount of fees you’re going to be paying.

Yes, payday loans are legal. They’re legitimate. They’re also a measure of last resort. Before you take out a payday loan, make sure you can’t get the money anywhere else, and make sure that you absolutely can’t wait.

Payday Loans: A Tax for People Who Are Bad at Math?

Some people really hate payday loans. Others just loathe them. Payday loans are, in a very limited number of circumstances, a viable method of last resort. They should never be your first choice.

Yet, some folks continue to take out payday loans, and sometimes to take them out week after week. They argue that the payday loan fee is relatively small, regardless of what the interest rate on the sheet of paper they signed says.

“So, what if the Annual Percentage Rate is 400 percent? I’m not borrowing for a year, just for 2 weeks” they say. Then, they wind up renewing the loan over and over again, sometimes for a year or more.

Let’s take a look at some of the basic math involved in a payday loan. Let’s say your lender wants to charge you $8 for each $100 you borrow. That’s not too bad, right? It’s actually very low – many payday lenders may charge as much as three times that amount. For argument’s sake, though, let’s stick with the $8 per $100 borrowed.

If you need $200 to get your car fixed, you’re going to pay the lender $16 to get you through until next payday. That doesn’t sound like a bad deal. Here’s the problem, though: chances are you didn’t budget $200 from that next paycheck to fix your car, either. So, you’ve got to cut back somewhere else (think Macaroni and Cheese for 2 weeks) or you’re going to have to renew the loan.

The majority of borrowers renew the loan for at least one more pay period. So, let’s say you do just that. Now, you’re at $32 in fees for that $200. It’s getting a little bit hefty, now. Now, you’re at or past what your bank would charge you if you’d have bounced a check.

So, come next payday, you decide that, no matter what, you’re paying part of the loan. So, you pay off $50 of it and renew the rest. Now, you’re up to $44 in fees. If you do the same thing for the next two pay periods, you will have had the loan for about 3 months and paid a total of almost $60 in fees.

The truth is that it takes most folks much longer to pay off their payday loans without renewing them, and by the time it is all said and done they’ve paid more in fees than the original loan amount. That’s just not a sound financial situation. Unless you’ve got no other recourse and it’s a matter of something that can’t wait, you should avoid taking a payday loan.

Why Payday Loans Rock

OK, I know. Everyone else out there is telling you that payday loans are straight from the pits of hell, that they were designed by a secret Nazi-Soviet alliance of evil accountants to break down the American financial system. To some degree, these theories are probably right. Some states have even banned payday loans outright, and the federal government has set limits on whether or not military personnel can take out payday loans.

However, there are times when payday loans are expedient and useful. Here are a few reasons that payday loans rock:

There’s no risk of a broken leg. While critics will compare payday lenders to loan sharks, the fact is that if you don’t pay back a payday loan no one is going to come and break your leg. They will turn you over to a collection agency, which can be annoying as hell, but they won’t break your leg.
It beats getting fired. Sometimes, you gotta make the hard choices. Sometimes, it’s a choice between taking out a payday loan to pay the repair bill on your car and being able to get to work. Yeah, you should explore other options, such as borrowing money from a family member or even taking the bus to work until your next payday. But, those aren’t always viable options.
A payday lender isn’t going to judge you. They’re used to working with folks with bad credit. They’re not going to peer down at you from across their desk and complain about how you paid your mortgage late for the past six months. They’re going to ask you how much you want, ask for proof of your income, take your check, and give you money.
A payday loan is a measure of last resort. You don’t ever want to get to the place where you have to take out a payday loan. But, it’s nice knowing that it’s there if you wind up needing it.
You can get them just about anywhere. The payday loan business has expanded greatly in the past couple of decades. There are even payday lenders who will loan you money online. Depending, of course, on the regulations in your state, you may not be able to get a payday loan at all, but if they are legal in your state chances are there’s one next to every Starbucks.

When a Payday Loan is a Bad Idea

Payday loans are a convenient and fast way to get access to small amounts of cash. Yes, the interest rates are higher than any other form of credit, sometimes being ten times as much as a credit card rate or even more. Still, because you’re borrowing for such a short period of time, it’s an acceptable fee.

There are times, however, when taking out a payday loan is just a bad idea. If you’re thinking about taking a payday loan and any of these conditions applies to you, think twice:

You won’t be able to pay it back right away. The point of a payday loan is that it’s a short-term loan. If you can’t pay it back on your next payday, you have a problem. You need to be able to pay it back right away in order to keep the fees from getting out of control. Otherwise, you wind up in the trap of having to take out a payday loan over and over again, racking up all sorts of fees in the process. Within just a few weeks, chances are pretty good you’re going to have paid in fees as much as the loan was to begin with.
You really can wait for the money. In some cases, people just get impatient. They want to buy something, and they want to buy it today. So, they take out a payday loan. This is also a bad idea. If you can afford it, and if you don’t need it to get through until payday, you don’t need it today. You’re better off waiting a week or two until you can afford it.
You have access to other forms of credit. Whether it’s a credit card or a personal loan or your savings account, you should exhaust other resources before turning to a payday loan.
You want to buy something on sale. The math just doesn’t work here. You’re almost always going to wind up paying more in fees than what you would have saved if you bought the sale item. Skip it for now. It’ll go on sale again.
You need to buy food or other essentials. If you’re in that dire of a situation, there are plenty of organizations that will help. From your state agencies to charitable groups, there are plenty of folks willing to lend you a hand without charging you huge amounts of interest.

Get Cash Fast Online (and Get Ripped Off!)

Payday loans are big business. In some cities, there are literally dozens of payday loan businesses. This has spurred a reaction from many folks in the community that don’t agree with these lenders or their high-interest, short-term loan practices. They wind up petitioning their local governments who then make zoning law changes that in effect prevent new payday loan businesses from starting up.

Unfortunately, just because there isn’t a brick and mortar payday loan store in your town doesn’t mean that there aren’t people who want and need short-term loans. So, many of these folks will turn to the Internet.

There are plenty of payday loan companies on the Internet. Today, there are a greater number of more Internet-based payday loan providers than there have ever been. Many of these businesses are legitimate, to be sure, even if their fees and interest rates are much higher than what consumer advocates think they should be.

There are also plenty of scam artists out there. There is the case of a woman in Maryland who wound up paying nearly $1,000 to a scam artist who promised to then loan her $5,000. Needless to say, the loan never happened and the woman wound up in more dire financial straits than she was before she turned to the online payday lender.

Part of the problem is that consumers just aren’t educated enough, in some cases, to recognize a payday loan scam online. You need to understand that any legitimate online payday loan company isn’t going to ask for any money upfront. The fee that you pay for the loan will be taken out of your checking account at the same time the amount you borrowed is taken out – usually about 14 days after you take out the loan.

Ultimately, online payday loan (like most things in life) are a case of buyer beware. You need to make sure the business you’re about to work with is a legitimate business, and that they’re following the law. If you suspect that a payday lender is illegitimate, you can also report it to the Federal Trade Commission.