{"id":500,"date":"2019-08-06T15:34:09","date_gmt":"2019-08-06T15:34:09","guid":{"rendered":"http:\/\/www.unitedfinances.com\/blog\/?p=500"},"modified":"2019-08-29T10:19:51","modified_gmt":"2019-08-29T10:19:51","slug":"everything-you-need-to-know-about-taking-out-a-payday-loan","status":"publish","type":"post","link":"https:\/\/www.unitedfinances.com\/blog\/everything-you-need-to-know-about-taking-out-a-payday-loan\/","title":{"rendered":"Everything You Need to Know About Taking Out a Payday Loan"},"content":{"rendered":"

Have you ever taken out a payday loan? If you have, you already know how much damage this type of loan can cause. If you haven\u2019t, thank the heavens for that, because these loans aren\u2019t a good idea. It\u2019s like signing a contract, yet you don\u2019t know the exact details, making it difficult to terminate.<\/span><\/p>\n

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This brings us to the next question: what is a payday loan? <\/span><\/p>\n

What is a Payday Loan?<\/span><\/strong><\/p>\n

In simple terms, it\u2019s a loan with an extremely short repayment period. In fact, it may not go past a month. You\u2019ll get these loans from lenders with physical locations or even online thanks to technological advancements\u2014one of the main reasons 12 million Americans<\/span><\/a> take out these loans.<\/span><\/p>\n

Often, people in tight financial situations seek these loans because applying takes a few minutes. The lender will evaluate your checking account and income to assess your ability to repay the loan. <\/span><\/p>\n

What about the checking account, you ask? Well, that\u2019s where the first reason why this loan is a bad idea arises. After approval, you\u2019ll have the funds available in your checking account. However, the lender will require you to issue a postdated check, and this will be for the interest charged plus the principal amount. <\/span><\/p>\n

Therefore, if you took a $100 loan today and the lender wants the money back in two weeks, you\u2019ll write a check with a date two weeks from today. This will be for the total amount, $115 \u2013 the loan ($100) and the interest ($15).<\/span><\/p>\n

This means the lender is assured you\u2019ll pay the money as agreed, saving them the stress and effort of having to chase you down. Sounds harsh, huh? However, you\u2019ll agree to the terms because you need the money fast and the lender doesn\u2019t care about your credit history.<\/span><\/p>\n

The lender will want your paycheck deposited into the account you provided and will set the date for the postdated check to match that of your paycheck deposit. This is why it\u2019s called a payday loan.<\/span><\/p>\n

Why it\u2019s Never OK to Take Out a Payday Loan<\/span><\/strong><\/p>\n

The cost of these loans is what stands out from the list of problems. In the example given earlier on, you need to pay a whopping $15 in interest for a $100 loan. Spread out this interest for an entire year and it\u2019s not much for a borrower with bad or no credit at all.<\/span><\/p>\n

However, with a payday loan, you\u2019ll have to repay this loan in only two weeks. If you look at this interest through an annual lens, you\u2019ll see that it goes past 300 percent, if you\u2019re lucky. Often, they range from 400 to 500 percent<\/span><\/a> or even higher.<\/span><\/p>\n

Even worse is that the people who can\u2019t afford the interest end up taking these loans. You didn\u2019t have the $100 today, there\u2019s no guarantee you\u2019ll have $115 in two weeks, and that\u2019s where the situation goes from bad to worse.<\/span><\/p>\n

The Vicious Cycle<\/span><\/strong><\/p>\n

Once you take out a payday loan, it\u2019s almost a guarantee there\u2019s no way out. You take out one, and it creates the need for another and another, and the cycle goes on.<\/span><\/p>\n

Since you don\u2019t have money to pay off what you owe, you\u2019ll run back to the lender asking for a second one to clear the first. It\u2019s important to keep in mind you went for the realistic online loans no credit check<\/span><\/a> because you didn\u2019t have money in the first place \u2013 an emergency fund to be specific. <\/span><\/p>\n

Your income will be depleted by household expenses and after two weeks, the situation will not be any different. To make matters worse, the lender will continue providing funds by postponing loan repayment every two weeks. Also, the lender will require you to pay the interest every two weeks while the initial loan remains outstanding. Don\u2019t be surprised when end up you paying up to $1,000 in interest for a $100 loan.<\/span><\/p>\n

Lenders know the type of borrowers who come knocking on their doors, and that\u2019s why they generally don\u2019t lend more than $1,000. They know the borrower is unlikely to repay the loan, especially if the size of the loan is huge.<\/span><\/p>\n

Once you\u2019re unable to pay off the loan, these lenders can be nearly inhuman when it comes to collection. You\u2019ll not only have to deal with threats, but chances are also you\u2019ll be served with a court order.<\/span><\/p>\n

Payday Loan Alternatives<\/span><\/strong><\/p>\n

Now that you\u2019ve seen how payday loans can wreck your financial life, it\u2019s time to consider other alternatives. In fact, almost all other alternatives will be cheaper than taking out a payday loan. Here are some of the most common alternatives:<\/span><\/p>\n