If you're wondering what's so bad about payday loans, the answer is simple. Because they're short term, payday loans are not the most financially sound way to solve your immediate cash shortage problems. So if you have cash flow problems in the current economic environment, it's good to know that there are ways you can overcome them with a little patience and a willingness to work at getting out of the situation.
The main reason you should be cautious of payday loans is the amount of risk involved with taking them out. For a relatively small amount of money, payday lenders can have you fall behind on your bills or have an unexpected emergency occur, leaving you without the money you need to cover those bills. It can also be incredibly embarrassing for the person you owe the money to, especially if the payment doesn't clear up right away and you wind up late paying those bills.
A payday loan can also come back to haunt you later. In addition to being short term, payday loans tend to have very high interest rates. With that said, they do have a very high success rate of returning their loaned funds. However, if you don't have the discipline to repay the loan in a timely manner, you run the risk of incurring even more debt.
As for fees and charges involved with taking payday loans, it's a good idea to know what you are getting into before you sign on the dotted line. You may find that the interest rates and the fees charged by the payday lender will outweigh any cost savings from the loan, making it an option that's better considered as a last resort.
For those who do qualify for payday loans, there's a good chance you'll be charged an annual fee for using this type of financial service. The reasons for this fee are that it's used to offset the amount of risk associated with payday loans and to help pay the fees of the service provider, but it doesn't have to be entirely deducted from the amount of the loan, depending on what the lender or company you're working with offers you.
Another reason you should be cautious of payday loans is the fact that there are some situations where you're better off doing without using this type of funding option. For instance, when you have a chronic medical condition that requires constant medical assistance, or if you have a credit problem with your employer, it can be a better idea to pay your bills with cash.
If you have a lot of money tied up in a home equity loan or an adjustable rate mortgage, it's not a bad idea to avoid a loan of any kind until you can afford to pay it off. When you're trying to get out of financial problems, you may want to avoid applying for a loan at a time when interest rates are the highest, since you could end up paying more than you expected to with high monthly payments and higher interest rates. When in doubt, take the time to shop around for the best possible interest rate and payment terms for you personal situation.
Those are the biggest reasons you should be cautious of payday loans. If you do have a short time to wait before you need the money, you should avoid them until you really need them.
There are some situations when payday loans may actually be beneficial, so you should consider researching them further before you decide if they're right for you. For example, you may not have a good credit score, but you may have poor credit if you've had some recent financial problems. This may make payday loans a better choice for you if your credit rating is less than perfect, or if you simply cannot afford to pay off your existing debts right now.
When shopping for payday loans, you should look at many lenders and see which ones charge the lowest fees and interest rates. This way, you'll be sure to find a payday loan that suits your budget.
It's always a good idea to research payday loans online first and ask friends for their opinions. You may be surprised by what other people say about specific companies, and the payday loan they used.