Are Payday Loans Really A Scam

Are Payday Loans Really a Scam

In case you do not know what a payday loan is, it is a small cash advance loan. This loan is normally secured using a check from the borrower that has been post dated for the next payday. This lone check serves as collateral for the loan company. These types of loans are helpful in some situations, like when payday is a week away and you are down to the last $3.97 in your checking account, but extreme caution should be used in securing one of these loans.

There is a fee for these loans that can range anywhere from about $15 to $50, depending on the company and the amount borrowed. Most payday loan companies will offer a new customer bonus or some ÒsaleÓ where you can borrow a small amount, say $200, and only pay back $203, but these situations are rare. This is, after all, how the company makes their profit and pays their employees. For such a small fee, it seems like a great choice for many people needing a little extra funding to tide them over until the next payday. In some cases, the borrower can opt for rolling their loan over until the following payday for an additional fee, usually equal to the first fee.

These types of lending institutions came about because banks and larger lending companies tend to frown on lending such small amounts of money. Banks especially do not lend this type of money on such terms. The interest rates at a bank, for example, on a $1000, 30 day loan, could be around 8%-14%. Some of the payday loan companies, when calculated out annually, comes to approximately 300%.

In all honesty, the only way to borrow money from a payday loan company is to understand all costs, and make sure that you are able to pay back the loan on the date originally specified. This should be done after you have already exhausted all options of borrowing from friends and family with post-dated checks. Always make sure to check the company out and make sure that they are legitimate. Never borrow money from a guy in a van down some dark alley. Oddly enough, one of the biggest causes of fraud starts with false payday loan companies. Do some research on the company by finding out their corporate headquarters phone number and giving them a call. Check the company out online and try to find other people that you know who have borrowed from them in the past.

Many borrowers will fall into the trap of carrying over the balance for another payday. This can be a very dangerous decision that could cost you quite a bit of money in the long run. This type of behavior is usually the beginnings of a downward slope towards financial ruin.

Be very careful when choosing a payday loan company. There are plenty of legitimate companies out there that offer great deals and can help you in a pinch. On the other hand, there are more than enough companies out there that are only available so that they can make a quick buck and run with your money. Understand each company, how they work, and all of their fees.