Despite Bad Press, Payday Loans Can Help
Payday loans rarely receive good press. Just look at the news in early January: The Iowa Catholic Conference made headlines when it urged its state legislators to cap interest rates on payday loans at 36 percent. At the same time, a new law in Washington State that took effect Jan. 1 limits the size of payday loans there to $700 or 30 percent of a person’s annual income, whichever is less. Kentucky’s governor, too, has called for a cap on the amount of interest that payday lenders can charge. But despite all this bad press, a large number of U.S. residents still rely on payday loans. A survey by the FDIC says that 18 percent of U.S. residents rely on means other than banks to meet their financial needs. Often these alternate means are payday loans. Yes, these loans can be dangerous. They can come with exorbitant interest rates. But if you ask the right questions, payday loans can serve as a valuable tool in difficult economic times.
A Booming Industry
People are struggling today. Unemployment at the beginning of 2010 was above 10 percent. Companies are asking their employees to take unpaid days off. It’s little surprise, then, that more people are turning to payday loans to make ends meet. These small loans help people pay their bills until their paychecks arrive. There are potential pitfalls with payday loans, though; these lenders often charge exorbitantly high interest rates. Others charge significant late fees. These are just two of the reasons why you have to do your research before taking out payday loans.
Get it in Writing
Before taking out a loan, ask your payday lender to spell out in writing exactly what the interest rate and fees are for the amount of money you are borrowing. Ask the lender, too, to write down the penalties that you’ll face if you don’t pay back your money on time. Before taking out a payday loan, you need to know exactly what kind of financial agreement you are making.
Don’t Become a Regular Customer
Many people who take out a payday loan return the following week to take out another. They do the same the week after. Before long, they’ve become a serial customer, taking out loan after loan. This isn’t the way payday lending is supposed to work; these loans are supposed to work as a once-in-a-while financial safety valve, a way to get through those weeks in which money is tight. If you become a serial customer of your local payday lender, you’ll end up paying far too much to borrow your money. You might want to work with a credit counselor to come up with better ways to meet your financial obligations.
