You find yourself driving down that same street in your city you have been driving for almost every day of your life. It is the route you take to work and you have every shop on it memorized.
Today things are different though because you notice that a new store is going in. On one of the window clings you read that it is a payday lender.
You are not sure how you feel about this because you have only heard negative things about the industry and you are concerned with the economic impact it will have on your community. This is when you realize that you should probably learn more about what payday loans are and how they help out those in financial need.
Payday loans are short term loans that exist to help people get out of debt fast. Financial institutions generally do not offer short term loans because they cannot make enough money on them based on their annual percentage rates, or APRs.
They are scared to raise their rates because they do not want people to misunderstand why they are doing so and thus have no services to help people out of unexpected short term financial difficulties. Payday lenders recognized this need and stepped in to help.
They have high APRs, which scare many if they do not know what these numbers translate to. On average the APR on a payday loan is 250% to 350%.
When you tack this on to a two week loan of $100 this converts to a fee of $15. That means they charge just barely over a dollar a day on a $100 loan.
This fee actually saves money when you consider all of your options. Banks have expensive overdraft fees that range from $25 to $50.
So when you have to pay something off in a short amount of time and you think your best bet would be to simply write out a check for money that you do not have in hopes they will not deposit it, you are gambling with a considerable amount of money. Because most companies go to the bank at least once a day, chances are very high that your check will bounce and you will be charged these fees.
On the $100 debt then it is clear that you would have saved money if you would have received a payday loan. Despite their low fees, other financial institutions are concerned with how this will impact their revenue and have thus complained about the high APRs of payday loans.
The truth is they are unwilling to actually help out those that need this help. Based on poor credit many people are denied loans every day from these institutions.
If they do pass the credit inspection, their loan will last a significant amount of time. By having a long term loan they are placing themselves in an extended debt, meaning they cannot taste of financial freedom for a considerable amount of time.
Payday lenders realize all of these difficulties and have thus created a solution for all, regardless of credit. When you walk into a payday lender they do not perform a credit check or any kind of background check.
All they do is guarantee you have a steady income coming in. This helps both parties out as this will ensure the debt can be overcome in a short amount of time.
As soon as this is established then all of the fees are discusses upfront. Payday lenders do not want to surprise the borrower but want to help them.
The borrower then writes out a check for how much will be owed back which includes the amount of the loan and the fees attached. The check is dated for the day in the future when the loan expires.
On that day, when the loan expires, the lender will then take the check to the bank and deposit it. This ends the transaction between borrower and lender for extra convenience.
Because the lender will be taking the check to the bank, it is important that you are sure your money will be in there. You should only take out a payday loan if you have a steady income and can be sure you will be able to pay off the loan in a timely manner.
This requires responsibility on your part which is necessary for placing yourself in any debt with hopes to overcome it. When you can guarantee an income, payday loans can ultimately save you money.
Jerry Daniels is a very trusted resource in the financial industry and has written many articles relating to consumer services and Personal Loans Online.