The Truth About Pay Day Loans
Stuck in the Pay Day Loan Cycle? Let’s talk about what a Pay Loan really is and better options!
Let’s start with what is a payday loan. You may hear cash advance or deferred deposit but it’s a short-term loan. The true definition may vary a bit.
Pay Day Loans are typically for $500 or less and are due to be paid back on your next payday, which can vary, but is typically 2-4 weeks, along with fees. Many companies market them as a great way to bridge the gap between your paychecks or for something unexpected.
It’s an unsecured loan, which means there’s no collateral needed to take it out. And they usually have really high interest rates. Some states cap the interest rate, but there are still some that are as high as 36% even with that cap.
To get this type of loan you will most likely either write a postdated check to the lender or authorize them to electronically debit your account.
If you don’t pay the loan back by the due date with all the fees and interest then they can cash the check you wrote or draft the money from your account.
On the surface this may seem great and like a lifesaver! But the fees and those interest rates make it really hard to pay back for many and they end up continuing to delay paying it back. They refinance the loan, which means comes with more fees and it becomes a cycle that they are trapped in.
Most states have regulations in place that limit some of the charges, but once you are caught in the cycle, it’s difficult to get out of.
Fees are charged if you can’t pay the loan back. If your account is drafted, this can lead to overdraft fees. The lender often charges a fee if the draft doesn’t go through plus late fees. There are also fees to “roll over” the loan. This is truly a no win situation.
Here are some ideas to try instead:
Contact your credit union, and inquire about an emergency loan. It is a similar amount of money as a pay day loan, but the interest rates are significantly cheaper and there won’t be all the additional fees. This is not a cycle to caught in either, but it’s a better option.
Some employers will allow a payday advance with no fees. That will be up to the company but it may be worth an ask.
Personal loans may be an option as well. This is usually for a larger amount than an emergency loan and they are still unsecured, so there is a limit to how much you can borrow. But if you do this through your credit union, again, the rates will be significantly less and you won’t have all those fees.
If you are trying to climb your way out of debt, this may be a good option to get that debt consolidated and paid off.
The key is to create a plan to get this debt and other debt paid off so you can live more comfortably. Begin with creating a realistic budget you can stick to and then follow!
Finances aren’t one size fits all. Everyone’s journey is different and sometimes a little help can go a long way.
We are here to help. Sometimes you just need that person that can help you get organized and maybe see some things in a different way to help you get moving in the right direction. We can be that person. So reach out whenever you are ready.