When we face tight financial situations we also face different options we can choose from to help lift us up out of debt. Considering there are numerous options, it can be overwhelming to figure out which one is the best based on what is in our path.
We do not want to choose the wrong one because we want to save the most money we can. This is why it is incredibly important to understand what the options are and use that knowledge to our benefit.
The problem is that some of the options are less publicized or even downplayed so we do not consider them. Payday loans are one of those options that are commonly misrepresented.
Because of this, it is necessary to understand what they are and contrast their cost with other options to see which would save the most money. In your financial difficulty difficult dilemma you are $ 100 short on cash and you have to pay your rent at the end of the week.
The problem is that your paycheck will not arrive until the following Thursday. You have to pay off this debt but you simply do not have enough money to do so.
You decide that you will simply not pay off your rent and hope your landlord will accept a late check. The problem here is you will be charged a late fee on your rent as soon as it is late.
This fee is usually a percentage of how much rent you pay so you end up paying a significant amount of money. Realizing this you decide you want to avoid going this route and look to other options.
Another thing people often choose to do is write out a check for money they do not have. This means that you would simply hand your landlord a check for the amount in full even though in your bank account you are $ 100 short.
This is done in the hope that the check will not be deposited until after you receive your paycheck and are able to take it in. This is a tricky decision because banks charge an overdraft fee on every check that bounces.
When your landord takes the check in to deposit it, it will bounce, and you will be left with the fee. These fees range from $ 25 on the low end up to at least $ 50.
Considering you are just $ 100 short, this translates to a cost fee. Payday loans came into existence because of these costly situations.
These loans are short term loans that offer you the freedom you need to pay off that rent and then pay off the loan in a timely manner. This results you from remaining in a constant state of debt and allows you immediate money saving measures.
On a $ 100 payday loan the fee would be about a little over $ 1 a day. This means that after two weeks, when you pay the loan back, you will owe $ 115.
This clearly saves them the most money so is a great option for this situation. Since its seemingly great appeal, many other financial institutions are scared of what effect payday loans have on their profits.
Because of these they have attacked the high annual percentage rate, or APR, of payday loans. Payday loans have an average APR of 250% to 350%.
This number is so high because these loans last a relatively short amount of time. Long term loans have low APR because they are able to accrue interest over an extended length of time.
When this time is shortened, it is more difficult to make a profit on a low APR. Payday loans benefit both the borrower and the lender by having higher APRs.
Taking out a payday loan is very simple. You walk into a payday lender and discuss how much the loan will cost including additional fees.
They will make sure you understand how much you will absolutely owe so it is not a surprise for you. You then show them proof of income which can be as simple as a pay stub.
When this is evident you write out a check for how much you will owe in full upon termination of the loan and date it for the day when the loan ends. Then, on the day the loan expires, the lender will take the check to the bank and deposit it.
Because they will take the check to the bank it is very important to be sure sufficient funds will be in there to pay off the loan. When you act responsibly then both you and the lender can benefit.