You need to pay your cellphone bill but you’re $75 short and won’t be paid for two weeks. An unexpected expense came up—your daughter needs a new uniform for the soccer team—and you can’t stretch last week’s paycheck to cover the expense. “I need alone now and I don’t know where to turn!” We’ve all been in these tricky situations where an emergency comes up and you are in a serious financial crunch. Many of us have credit cards for this sort of thing. What if you can’t rely on plastic though? Where do you turn?
If you’re like thousands of Americans who need a personal loan an obvious choice might be to borrow money; to take out a short term loan. They’re quick, easy, and risk free! Or at least, that’s what the advertisers would want you to think. In reality short term loans are a seriously shady business, and one that kicks you when you’re down in the financial dumps.
Short term loans go by a few different names—payday loan and payday advance being among the most common. You’ve probably seen one of their sleazy locations while driving past a strip mall. “Cash advance in minutes!” Their fluorescent signs call out at you when you’re in the most desperate of financial situations.
If you’re short on cash, have bills to pay, and cannot wait until your next pay day a short term cash advance from a company claiming to solve all of your problems may seem like a great idea. All you have to do is walk in the door and within minutes– just like the signs promise– you’ll have the money that you need to make it through the next two weeks before pay day. You can even get a short term loan over the internet these days, further making the prospect of quick money easier and more tempting.
Few things are as easy as they sound though, and short term loans have serious risks that you should be aware of. Luckily, we are here to explain the risks and alternatives to you—and we have got some advice to help you plan better in the future. You might be stuck in a financial rut, but don’t worry with a little planning there is hope!
A short term loan is a loan that you can get in a jiffy despite having bad credit history because getting one does not require a credit check. The thing about these loans that they are made for someone looking for money just to get them between paychecks—you can get approved and get the money in just a matter of minutes. Once you are approved for the loan most lenders will send it directly to your bank account.
The first thing to take into consideration when looking into payday loans is that they are short term loans only. If you are going to need that money for a longer period of time, or cannot pay much back for a long time a payday loan is not good for you.
If you desperately need cash for an emergency only for a week or two before your next paycheck, you are certain that you will have the means to pay it back come payday, and you cannot pay for the necessity with credit cards—then consider looking into a payday loan to get you through.
Almost anyone with a bank account can get a payday loan. Lenders do not do credit checks, they do not ask about your employment, and they do not ensure that you have a steady income.
When looking into things like payday loans it is important to look at who the target audience for the loan is, because it can tell you a lot about how a company could be trying to rip you off.
This is the tricky thing about payday loans. Studies show that lenders aim at low income individuals who already have significant credit card debt. Taking out a payday loan puts a person into this sort of situation into serious trouble. If you cannot pay back the loan, the interest rates are far greater than the interest rates from a credit card. Despite this, lenders specifically aim at low income individuals—it’s a shady business.
That being said, when the state of Oregon made payday loans illegal researchers found that people’s finances and debt got worse, because borrowers sought out even more dangerous types of loans—like title loans—that are even more dangerous for your credit.
Essentially, payday loans are aimed at people who are in desperate financial situations which is why they can get away with charging such high interest rates—but as far as loans go they are not the worst that you could do.
There is a limit on how much you can borrow—usually ranging somewhere between $100 and $1,000—but the exact amount depends on the lender that you are borrowing from.
Sometimes lenders will tell you that there is a minimum amount that you have to take out that is more than what you want. Don’t fall for it! A lender will tell you that there is a minimum amount to try and get you to pay more interest. Run far away if this happens because you definitely do not want to borrow from anyone that is trying to rip you off right off the bat.
Again, this depends on where you are borrowing from. Some places only give you a few weeks to pay back your loan and others give you several months. If you do borrow, paying back as soon as possible though is best because of high interest rates!
Interest rates are definitely the “catch” when it comes to payday loans—they are insane. Some payday loaners charge as much as 2000% interest. This means that if you borrowed $1,000 for two weeks you could end up owing as much as $1833. If you borrowed the same amount for a month you could owe as much as $2,666. Most interest rates are not this high, but none of them are low—so be careful!
You can look into getting a payday loan both online or in person. It is worth it to compare the interest rates and terms at the lender locations nearest you and online to see where you can get a better deal.
One tip for finding the best place to get a payday loan is to look up any comments about that place on the internet. If the place you are looking into does not have any reviews it might not be worth the risk to get a loan from there. Definitely stay away from any place that has bad reviews on the internet, if they ripped off other people there is a huge change they will rip you off as well. It’s not worth the risk, no matter how great they make the deal sound! If other people have had good experiences with a certain place, you are a lot more likely to as well.
If you can avoid it, I would highly recommend not using a website to get a payday loan, it’s better to do it in person than over the internet. There have been reports of identification theft—meaning social security numbers, bank routing numbers, etc.—being tied to payday loan websites. You can never be too careful when it comes to your identity and the internet, and you should probably avoid these websites if you can get a loan in person.
There is generally not a fee to borrow from these lenders. They get you with the interest rates. If there is a fee you should probably steer clear of that lender.
Definitely shop around for the lowest interest rates! A website may say that they have the lowest rates, but you won’t know for sure if that’s true until you go into a lender in person. Interest rates vary by state and by lender. If you live near a state boarder you can consider looking into cheaper rates in the state next door as well.
Short term loans are not legal in every state, so if you cannot seem to find a place to get one that is probably why. Arkansas, Arizona, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Vermont, and Washington DC have all outlawed this lending practice.
I highly recommend not getting a payday loan in a state where they are illegal. If something goes wrong or a lender is ripping you off it will be far more difficult for you to get help to get out of the situation. Also, if someone is advertising payday loans in a state where it is illegal report them!
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