Payday loans are a type of unsecured loan that virtually anyone can get, no credit check is required. They are usually only issued for short time frames, usually two weeks at a time and for amounts less than $1,000. There are some real problems with these types of loans, so many problems in fact that 15 states have made these loans illegal. These unsecured loans are primary used by lower income people who may not be fully informed about the potential high costs of these loans; in some cases the APR may be as high as 600%. It’s these high interest rates that led to their being made illegal in states with strict usury laws. Usury laws prevent companies from charging exorbitantly high interest rates.
The way these loans work is that you give the loan company a post dated check, for example if you’re trying to get a $300 loan, you would post date a check for $340. If you don’t come in to pay off the loan, then the lender deposits your post dated check. If you don’t have sufficient funds in your bank account to cover the check then you also run the risk of getting charged bank fees, plus you still owe the loan and interest which keeps accumulating.
What happens to some people is that they are never able to pay off the loan, so it keeps getting rolled over. Each roll over drives up their fees, which may end up creating a vicious cycle of debt that they will never be able to get out of. This is why it’s best to avoid these loans at all costs. It’s always tough to get in a cash crunch, but a payday loan may actually make things worse. Better options to the payday loan may be trying to get a loan from a bank, borrowing from family or friends, using a credit card, or negotiating with your creditors to allow you to skip a payment. None of these options is ideal, but the payday loan should be used only as a last resort.
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