|Payday loan regulations vary from state to state|
How do pay day loans work?
Short-term loans like these can be borrowed anytime and do not even require a credit check. Normally you just make an agreement to pay back the amount that you have borrowed at the end of the loan term. However, you must know that the APR or the annual percentage rate for these loans are quite high. If you cannot pay back your loan within the stipulated time your loan rolls over to the next cycle and you will have to pay additional charges like a late fee.
Today, even banks have started offering pay day loans online because these loans generate a lot of revenue. You may find them being given a lot of different names but they are all the same nature nevertheless. In other words these loans are really expensive and can cut a hole in your pocket for taking one.
What is the substitute for online pay day loans?
Since pay day loans can be very expensive, it is advisable that you seek other options if you have any. What could your other options be? Take a look:
- Emergency fund: This is the best option anyone could have. If you have an emergency fund stored away, you will never need to get a short term loan or end up paying far more than what you have borrowed. This might be a little easier said than done but building a fund for crisis situations is the wisest thing to do. Start by adding little extra money to your savings account and you can have money to use in a financial crisis.
- Borrow from other sources: These sources could be your family or friends. Not everyone will be willing to lend money to someone who is in a financial crisis but you could still try. At least, you will not have to return the money at high rates of interests. Friends or family may not refuse if it is a few hundred dollars.
- Build your credit history: Now this takes time but there is never a bad time to start building your credit history. With a good history you may not have to depend on payday loans online same day for some cash and apply for other mainstream loans.
- Get unsecured loans: A lot of times bank offer unsecured loans to borrowers who do not have a credit card. You could take advantage of such a program.
- Get another job: If you are already working, try getting a part time job for that extra cash that you need.
How expensive are payday loans?
When you borrow a payday loan online and same day, lenders will charge you an amount that you have to pay within a fixed period. For example if you are borrowing $100 for 2 weeks, you may end up giving back approximately $145. The lenders may not be very clear about how much interest rates they are charging for the money they lend but these rates can range anywhere between 390% and 900% according to studies. In addition to this, if you fail to repay your same day loans you will have to bear additional charges like a late fee and added interest rates of a rolled over loan.
How can I avoid such loans?
- Make a budget and stick to it: You have to figure out your monthly expenses and income and make a budget that includes (even if it is the least you can do) an amount you can save each month. It is important you stick to your plan.
- Get overdraft protection: For this you will need to speak with your bank to protect your checking account from any kind of overdraft situations.
- Consult with credit counseling provider for consumers: If you have noticed that you are a regular visitor to the financial crunch area, it is advisable that you make an appointment with a counselor. They are great advisors on how to deal with your finances and what to do in a situation like yours.
Image license: Helen Cobain, CC BY-SA 2.0