Payday loans: What they are, and why they’re so troublesome

While life is full of ups, downs, most people will eventually find themselves in a financial bind. When this happens, you can easily become financially bankrupt. Many people fall for the temptation of a payday loan.

What is a payday lender?

A payday loan is a short term loan for $500 and less that is due by your next payday. They can also be called cash advance loans. The loan is a cash advance secured with the borrower’s personal cheque and was created for people who urgently need money. Payday loans can be advertised as an easy and quick solution to temporary cash flow issues. Payday loans are easy or quick for most borrowers via GAD website

How can I get a payday advance?

The borrower makes a personal check, payable to the lender, for the amount they are borrowing. The lender gives the borrower the amount of their loan less their fee. They also agree to keep the borrower’s postdated check until the loan becomes due. Usually, this is the borrower’s next payday. At that point, the lender will deposit the check into their lender accounts.

Who uses these loans?

Payday loans are available to anyone with a checking or savings account and steady income. It is possible to borrow from this lender even if you don’t have savings or credit cards. These loans do not require credit checks and are popular among people with bad credit ratings or no credit. The Consumer Financial Protection Bureau states that payday loan borrowers can become trapped in debt cycles and often get overwhelmed by the fees. These studies found that about 80 per cent of payday loans can be rolled over to a repeat loan, increasing fees for borrowers.

How much are these loans?

Here are the problems that can arise. The loan cost may be between $10 and $30 per $100 borrowed. A typical payday loan of two weeks with a $15 fee per $100 is almost 400% annually.

While payday loans may have been a viable option for people who need short-term cash, it is very costly. You don’t need to fall for these flashy ads. Instead, you can choose one of these options to help you get through difficult financial times.

Alternatives to payday loan:

• Direct deposit is an option offered by your employer. You can also make automatic deposits to your savings account. This will allow you to have funds readily available for when you are really in need.
• You can contact your creditors to ask for more time, or negotiate a payment schedule.
• Hawaii State FCU members can access Money Management International (MMI), an anonymous and free credit counseling service. HSFCU members can also get budget and credit counseling as well credit report review. They also offer debt management plans for no charge.
• Credit unions offer small personal loans. Credit unions transfer the savings from their non-profit status to their entire product range, offering customers higher rates for savings accounts and lower rates for loans and credit cards.
• Cash advances from your credit cards are a great way to save money.
• Ask for an advance from the employer.
• You can use your credit union’s Overdraft Protection feature.
• Ask a family member to lend you money.
• Even payday loans may not be an option in extreme circumstances. Pawn shop loans may be better than payday loans. They are less expensive than payday loans. There is also an exit strategy for borrowers who can’t pay. The lender will keep the item and the borrower is free to walk away without any further obligations.