Payday loans are loans made to borrowers who need quick and easy money and who do not have savings or other credit options. Payday loans should be the last resort for borrowers who have an immediate and temporary financial need such as a medical bill or car repair. Payday loans should, however, be paid back as soon as possible to avoid additional fees and finance charges.
Who can get a payday loan?
Payday loans are the easiest type of loans in which to qualify. In fact, if you have a checking account and a steady income you may receive a payday loan. Unlike other loans, the lender will not perform a credit check or turn you down if you have had credit issues.
Why are payday loans a bad idea?
Before borrowing any money through a payday loan it is important to understand the risks. The costs are very high. In fact, unlike a standard home mortgage rate which could be as low as 2.5% or a credit card which has an APR of 12%, a payday loan may charge an average of 400%. With this in mind, if you are able, it is generally better to use your credit card to make purchases or to find another way to meet your financial obligations.
Payday loans and state regulations
Many states have passed laws regulating the payday lending industry. Laws, called usury laws, are now in place to regulate the terms, rates, and conditions of certain payday loans. For example, some states regulate the amount which can be loaned or the amount of interest charged. Other states, such as New York, have taken more aggressive action against payday lenders and have banded them within the state.
Cons and Pros of applying for a payday loan
Payday loans will offer immediate cash for those in desperate need, but given the risks of payday lending, before applying for a payday loan, it is important to understand your borrowing options. Almost any borrowing option will be less expensive. For example, if you have an emergency you first should consider the following:
- Can I charge this on my credit card?
- Can I receive a line of credit from my bank?
- Can I tap into my savings account?
- Can I renegotiate a payment plan with the creditor?
- Can I ask the creditor to extend the bill payment?
- Can I get money from a friend or relative?
- Can I get a cash advance on my credit card?
Payday loans and bankruptcy
Chapter 7 bankruptcy does discharge most unsecured debts, including payday loans. Some debts, however, are not discharged. For example, the court may not discharge debts that they believe were fraudulently incurred, which can include debts for luxury goods or services incurred within ninety days before filing bankruptcy and certain cash advances taken within seventy days after filing bankruptcy. Before filing Chapter 7 bankruptcy it is important to discuss your case with a bankruptcy lawyer.
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