Payday Loans: Be in the Know
Payday Loans are Easy to Get – But is That Really a Good Thing?
“I just need a few hundred dollars to tide me over until I get paid on Friday!”
Sound familiar? It sounds dangerous to me. I realize that we have all been up crap financial creek without a paddle, but most of us have budgets, with a little emergency savings built in, in order to help us out in situations such as these. Basically anyone with a job and a bank account can get a payday loan – no questions asked. That’s why they are so easy and convenient to get your hands on - compared to loans for your bank, and that is where the trouble starts.
Before you say it, I understand that life can throw us some unexpected financial curve balls – maybe your car breaks down, you suddenly find yourself without a job, or your furnace goes on the fritz in a mid-January blizzard. What do you do under circumstances such as these?
Many would turn to a payday loan.
Payday loans, also fondly called cash advances, are short term loans that you can apply for to bridge the financial gap between paychecks. Sure, they’re lifesavers during an emergency situation, like the ones I’ve outlined above, however an emergency to one person is not always deemed quite as urgent to another. For instance, the following are common explanations that folks use for taking out a cash advance or Payday loan:
- You have a hot date and you need to show this girl the time of her life or she’ll never go out with you again – problem is you don’t have the money to even pay for dinner.
- Mother’s day is tomorrow and you don’t even have the cash to buy your wife or mom flowers. You forgot Mother’s Day completely last year, and you were in the dog house for months, so this year you have to make up for it.
- You’re on the vacation of a lifetime in Europe, problem is that you’ve already spent all of your traveler’s checks – and your traveling companions want to head to a hot bar in London tonight. You know your next paycheck is going into your account in 3 days, but you’ll be on a plane home by that time.
- You forgot that your rent and this month’s car payment were coming out of your bank account on the very same day. This is a BIG problem because you don’t have the cash to cover both. You can’t afford to miss rent or your landlord will probably kick you out, and you don’t want to miss another car payment – it’s got to be wreaking havoc on your credit score.
- Your company Christmas party is coming up. You don’t have anything to wear –except for that tacky bridesmaid’s dress that your cousin made you don at her wedding last fall. You’re expecting a huge holiday bonus – your company is always in the giving spirit around the holidays, so you can bet you’ll be able to pay back that cash advance right away – right?
These are all poor excuses for having to resort to a payday loan. Really, you should have better self-control over your spending habits, and you should be able to plan ahead financially if you really want to purchase gifts and clothes for special occasions, go on vacation and pay your bills on time. However this is not time for a lecture. Instead I’m going to lay it all out plain and simple for you when it comes to those too-good-too-be-true cash advance payday loans.
The sordid truth about payday loans
Ok, I’m going to give it to you truthfully here, a payday loan can appear like a godsend if you’re back is against a financial wall, say your car breaks down and you can’t get to work, however it can also put you in the habit of knocking up Mr. Payday for some easy money every time you’re a little short.
Here’s a common scenario for you: You’ve driven half way across the country to attend an aunt’s funeral. On your drive home your car breaks down, and you must get back home tomorrow morning because you’ve got a plane to catch to Germany for an important business meeting. What do you do? You call everyone you know to wire you some cash, but no one comes through for you, so you head to the nearest payday loan center so you can purchase a ticket back home. Maybe, just maybe in this case the circumstances called for a bail out from payday. But what about a week later when you find yourself broke in between paychecks? A cash advance sure looks tempting doesn’t it?
Do you see what I’m getting at? Excuse my tacky metaphor, but cash advances can be sort of like drug addictions, and I like to call those with bad cash advance habits “payday loan junkies”. You were hesitant before your first hit, but once you learned how easy it was to get and how good it made you feel, it’s so easy to go back for more. The bottom line is payday loans should always be your last financial resort. They should never be a regular feature of your monthly financial planning.
Payday loans should only ever be a one-time emergency source of money. They should never be used to buy items or services that you don’t absolutely need. The problem is that’s what many clients of cash advance centers get in the habit of using them for. It’s frightening that once you get in the habit…it becomes just that a bad habit that you can’t break! The trouble is that they can get you into deeper financial hot water because of insane interest rates. If you don’t believe me then take it from the Federal Trade Commission who dubs payday loans the most expensive type of credit. The FTC website paints a very real picture for us, “A payday loan secured by a personal check for $115 to borrow $100 for up to 14 days…until your next payday. [You] the lender will either pay back the $115 in cash [on time], or roll-over the check by paying a fee to extend the loan for another two weeks. The initial loan [will cost you] a $15 finance charge and 391% in annual percentage rates (APRs). If you roll-over the loan three times, the finance charge would climb to $60 to borrow $100.”
If you need to resort to a payday loan, you should be aware of the following:
Never use cash advances to pay your bills, credit cards or loan payments - Payday should never be looked to as the financial source that keeps you afloat and on the up and up with creditors. If you need to get a payday loan for to bail you out regularly, then you need to seek financial counseling to help you put together a budget.
Don’t take more than you make - If you borrow more than you can possibly pay back on a payday loan will have you paying up to 391% APR or a 25% service fee. So if you have to take out a cash advance, be sure to be aware of your repayment deadline, and the penalty fees you’ll owe if you don’t pay up!
Is Mr. Payday legit? - To apply for a payday loan you’ll need to give the creditors your social insurance number (SIN), your date of birth (DOB), your address, information about your employer and personal bank account. At this point the creditor has every detail and means to rip you off. That is why it’s important to make sure you’re dealing with a reputable payday service.
If you budget properly, and create an emergency fund to avoid the need for cash advances, you will always have cash on hand should an emergency arise. Better yet, an emergency fund will mean you never have to worry about the headaches of payday loans.
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