PayDay Loans

In the first of our series of informative articles related to payday loans and loan finance in general, we look at *.

WHAT YOU NEED TO KNOW ABOUT PAYDAY LOANS

We've all heard of payday loans as they are spread all over the internet in small ads on many blogs, websites etc. However not everyone knows exactly what payday loans are. This article will endeavour to set that straight by explaining what payday loans are, an example of the fees you might incur (relevant at the time of publishing this article, November 2007), what type of people may need a payday loan and some tips on the correct way in which to use a payday loan.

So what exactly is a payday loan? Well, a payday loan is basically a small cash advance loan. Often this loan is secured by the borrower, by them writing out a cheque dated for their next pay day as a form of collateral. A payday loan can be very helpful in certain situations although caution should be exercised when deciding to borrow money in this way.

What kind of fees should you expect to pay for a payday loan? Fees vary enormously between lenders, but usually fall between $15 and $50. The borrower is able to obtain money for an emergency or to cover money shortage which will tide them over until their next pay day. Should a borrower decide to extend what they owe for another fortnight, they will be responsible for a second fee at the same rate.

What type of people need a payday loan? Well, the need for this kind of service has been created as a direct result of banks and other lending institutions generally declining to lend small amounts of money with similar terms. The downside to a payday loan is that the interest rates are extremely high. The amount of interest is often calculated at as much as 300% per annum.

Often borrowers will fall into the trap of taking out a payday loan from a provider once every fortnight in order to stretch their income further. In this situation, a payday loan can a very poor choice. People who become caught up in the trap of continually borrowing money from the companies that lend it and rolling the money out more than once will run the risk of getting still further into debt.

So is there a right way to use a payday loan? Yes, of course there is. When you borrow money from a payday loan company, you must ensure that you understand the associated costs and only do it in an emergency. This means where the preferred options of borrowing money from friends, colleagues or family members and giving them a forward dated cheque is not available.

You should always take care to ensure the lending company is legitimate. One of the leading causes of fraud comes from disreputable companies posing as legitimate payday loan companies. You must research the company first, by discovering where the company is situated and obtaining their phone number and try ringing it. Also, you can look over the internet for any reports or information about the company and try to find out any information from other people who have borrowed money from them.

Always be wary of payday loan companies that require a fee before forwarding the money to the borrower and avoid revealing your bank account number. Better to opt for a wire transfer from Western Union rather than give out bank account details, as this may enable fraudulent companies to access your accounts and create more money problems. Always be aware that some payday loan companies are scams. You borrow money at your own risk, so care needs to be observed when choosing your payday loan company to ensure it is legitimate.

The best way to deal with a payday loan company is to understand how their fees and charges work. Know exactly how much it is going to cost you to borrow the money, and what will happen if you can't pay it back after payday. Be very choosy with payday loan companies, some offer you a better deal than others.

Author: Terry Didcott

Word Count: 665

Submitted: 20th November 2007

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