Payday Loans: Cheap Loans if Used Properly

By April B. England

When a money situation happens, such as the water heater breaking or your loved one going on yet another spending spree, it is tempting to turn to a hot new financial industry: payday loans. From web sites to television ads, financial entrepreneurs have been offering short–term cheap loans to be paid back within one pay cycle. These cheap loans are extremely popular among those of us with poor credit, no credit, or other disqualifiers; and they take minutes rather than days like a traditional bank. The concept is simple: you write a post–dated check for a certain amount plus interest. Your check is “held” until your next pay period, at which point the loan can be paid in full. If you do not have the funds to cover the “held” check when that pay period comes around, you can pay only the interest on the principal and write a new postdated check to extend the loan to the following payday.

These loans are very alluring to someone whose credit has been ruined by their loved one with bipolar disorder, and you are financially tapped out by manic episodes. A payday loan looks very appealing when no credit check, no collateral, and no cosigner are needed. A quick Google search reveals 11,800,000 web sites referencing to or offering to finance payday loans. You can have up to $1,500.00 direct deposited into your bank account within twenty–four hours. If you prefer to support your local hometown businesses, a payday loan shop is probably right around the corner from you. With as little as your driver’s license, your most recent bank statement, and your most recent paycheck, $500.00 could be in your hands in a half an hour or less.

Sound too good to be true? Payday loans are a hot new industry with little to no regulations at this point. The slick TV commercials and flashy web sites tout all the benefits of a quick, cheap loan to save a person the embarrassment and expense of having checks bounce. Another advertising strategy hits you right in the checkbook: pricey late fees and overdraft fees can add up fast, so a payday loan for this payday to be paid next payday seems cheaper than being socked with bank fees.

As always, do your homework before taking out a payday loan. Most often consumers forget a payday loan is just as real as a traditional bank loan. Just like your mortgage, a payday loan has a contract which must be signed by you agreeing to all annual percentage rates, minimum payments, and penalties if the loan is not paid on time or is returned by your bank as unpaid. The ugly side to these cheap loans is they could land you in jail if not they are not paid or returned by your bank unpaid. This is possible because in lieu of collateral, a post–dated check is being physically held for you; if you do not pay your payday loan on time, you could be charged with theft. Even an electronic payday loan is considered as binding as a “real” paper check and therefore is subject to any laws concerning check writing.

Payday loans are serious business, not only for the paycheck advance business owners, but also for the consumers as well. Payday loans can be cheap loans if paid back immediately. Just remember the cardinal rule: never borrow something, even with a cheap loan, that you cannot afford to pay back.

About the Author

April B. England is a contributing writer to BipolarCentral.com.