If you are in need of fast cash, then a payday loan may seem like a good option. Payday loans are incredibly easy to obtain and, in many cases, you don’t even have to show proof of employment or finances. However, payday loans are notoriously very costly. A report from the US Defense Department a few years ago said that, on average, borrowers will pay back $827 on a payday loan of $339! When you see these figures, a payday loan hardly seems worth it!
But what about those people who are in desperate need of some fast cash? The immediate need for a payday loan could easily outweigh the longer-term costs. For example, let’s say that you run a delivery service and your car breaks down. You need $300 for repairs but have no means of getting this money – credit cards, pawnbrokers, and family members have already been exhausted as resources. If you don’t fix your car, it is going to cost you a lot more in lost income so paying the costs of a payday loan would be worth it.
Payday loans is that they are really only designed for those in desperate situations. Most states limit payday loans to $500, which is a paltry sum compared to what banks will generally loan. If you can’t come up with $500 through any other means and are considering a payday loan, then this would certainly qualify as “desperate.” People in desperate situations often make reckless decisions: they don’t bother to read all the terms of the payday loan or calculate how much the payday loan will really cost. They also are probably so focused on the immediate need that they forget to make a long-term money management plan. Without this sort of advance insight and planning, the payday loan interest is likely to take a massive toll.
Most payday lenders operating out of storefronts will offer interest rates of 455% plus about $15 to $18 per each $100 which is loaned. If the payday loan isn’t paid off in the agreed-upon term, then even higher fees and interest rates could apply. With these sort of rates, it is easy to fall into a downward spiral of debt from one small payday loan.
Luckily, borrowers do have many more options available to them today. There are now many reputable payday lenders online. Because of all the competition between the lenders, it is possible for borrowers to find more favorable interest rates and lower fees. Online debt calculators also make it easy to figure out how much the payday loan is really going to cost you.
Here are some things to consider to determine whether a payday loan is worth the high interest:
- Do you really need a loan? What will happen if you don’t get the loan amount?
- Are there any other options, like taking a loan from a credit card, friend, or pawnbroker?
- How much will the payday loan really cost me?
Most importantly, don’t ever let desperation cause you to make foolish decisions. Take your time, do your research, explore your options, and then pick the best payday loan for your needs.