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Help! I Need Money Fast. Should I Get A Payday Loan?”

girl thinkingHer name was Julie. She was 24 years old and a recent college graduate. She had found a job but like many young people these days, it wasn’t in her field of study. She was earning very little but proud of the fact that she was out on her own and not depending on her parents for support.

Then it happened

Julie was doing fine until the day her car broke down. It cost $120 just to tow it to a garage for repairs and another $250 to fix its transmission. She didn’t have $370 saved so was wondering about those fast cash payday loans. She asked. “Is getting a payday loan a good idea or not?”

How they work

The way a payday loan works is very simple. Let’s say Julie decided to get one. She would write the payday loan company a check for whatever amount she needed to borrow, plus the loan company’s fee. The check would be dated to coincide with her next payday. She would get the $370 in cash to get her car fixed. When her next payday rolled around, the payday loan company would cash her check and get its money back along with its fee.

Borrow only what you know you can pay back

The number one rule of payday cash loans is to never borrow more than you know you can pay back. Whatever amount you borrow will be subtracted from your checking account the next time you’re paid. You will need to have enough in your account to pay back the loan and to live and pay your bills for the following one or two weeks.

What happens if there’s not enough money in your account?

Suppose your next payday hits and there’s not enough money in your checking account to cover the check you wrote the loan company. If this is the case, the loan company will simply extend the loan and then charge you another fee.

The cost of a payday loan

The amount of money the payday loan company charges may not seem like a lot until you think about it in terms of its APR or annual percentage rate. Payday loan companies typically charge $15 to $20 every two weeks for each $100 they advance you. This actually translates into an APR of 390% to 780%.

The dangers of a payday loan

The biggest danger of a payday loan is what happens if you can’t pay it back and it keeps rolling over and over. This could cost you literally thousands of dollars a year in fees. And if you give the payday loan company the ability to access your checking account to get its money, you could be opening yourself up for a load of trouble.

If you don’t pay back the loan

It’s important to keep in mind that no matter what they call it, a payday loan is still a loan. If you don’t pay it back the loan company could do what any bank or credit card company might do, which is to turn your debt over to a collection agency. The loan company or the collection agency could even end up filing suit against you.

Consider alternatives

If you need money in a hurry, there are other alternatives to getting a payday loan. For example, if you’re an hourly worker you could ask your employer for more hours. You might also ask for a cash advance on your next paycheck, which would mean paying no “fees” or interest. You might also have something sitting around the house you could sell on Craigslist to get you through that emergency.

By Samantha Seiffert
I am a personal finance blogger for National Debt Relief, a Debt Management Company that has helped thousands of Americans facing credit card debt problems. We help with debt settlement, debt management, and other debt related financial crisis' facing con

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