The payday loans contract is a pretty simple one. You need a short term loan of 2 weeks to a month to cover some costs incurred that you had not planned on. You have a job and fulfill the other conditions that are required to qualify for a payday loan. Problem solved?
Maybe not because the one question that is left up to you is how will you find the money to pay back the loan when it comes due in a couple of weeks or in a month. You say that is easy because you get paid in two weeks but have you already committed that paycheck to paying other bills? If you have enough to pay your bills in two weeks and pay off the payday loan...Great!! However if you have just postponed the problem of paying the bill for two weeks to another paycheck that is already booked you have some choices that all lead nowhere that is good.
First scenario is that you have to pay off the payday loan and get another one. In this case you pay off the one and then incur the full costs of again using payday loans. Hopefully you will be postponing paying the debt to a payday where you have enough left over after bills to pay off the payday loan in full.
In the second scenario you get caught in a web called rollovers. Lenders offer to defer being paid if you just pay the fees or part of the fees and then incur new fees. In a worst case you come out owing more than you did after the first loan. If you do this 5 or 6 times you can come out owing more than double the amount you borrowed within a few months of the very first loan.
In most states and countries rollovers are illegal. At the very least they are immoral as they take advantage of the financially illiterate. However, the biggest question that needs to be addressed when taking out any loan, especially a payday loan is how will I be able to pay it back when it become due. If you cannot plan how to pay it back when it is due then do not take the loan. Know when and how you will pay back any loan before you take it out.
Maybe not because the one question that is left up to you is how will you find the money to pay back the loan when it comes due in a couple of weeks or in a month. You say that is easy because you get paid in two weeks but have you already committed that paycheck to paying other bills? If you have enough to pay your bills in two weeks and pay off the payday loan...Great!! However if you have just postponed the problem of paying the bill for two weeks to another paycheck that is already booked you have some choices that all lead nowhere that is good.
First scenario is that you have to pay off the payday loan and get another one. In this case you pay off the one and then incur the full costs of again using payday loans. Hopefully you will be postponing paying the debt to a payday where you have enough left over after bills to pay off the payday loan in full.
In the second scenario you get caught in a web called rollovers. Lenders offer to defer being paid if you just pay the fees or part of the fees and then incur new fees. In a worst case you come out owing more than you did after the first loan. If you do this 5 or 6 times you can come out owing more than double the amount you borrowed within a few months of the very first loan.
In most states and countries rollovers are illegal. At the very least they are immoral as they take advantage of the financially illiterate. However, the biggest question that needs to be addressed when taking out any loan, especially a payday loan is how will I be able to pay it back when it become due. If you cannot plan how to pay it back when it is due then do not take the loan. Know when and how you will pay back any loan before you take it out.
About the Author:
Virgil Jones is a consultant in the area of personal finances. Virgil has writen for online ezines such as Money Saving Tips
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