Advice on Payday Loans: Getting Cash Fast

Many of us are a little strapped for cash these days, especially as we head into the holiday season. So if we end up being hit with an unexpected expense, such as a car repair or a doctor's bill, we may not know where to turn. That's when seeking out a payday loan may be the financial answer to a temporary problem. But before you sign on the dotted line for that quick cash infusion, make sure you understand how a payday loan works and are aware of all sides of the issue.

What is a payday loan?
A payday loan is a temporary loan that is granted to an individual for a short period of time with the guarantee that it will be paid back by the agreed upon date - usually in about two weeks, or at the time the person gets their next paycheck. Hence the name, payday loan.

Where can I get a payday loan?
A payday loan may be secured in-person at any number of storefront locations or through online sources. Even some large banks are getting into the payday loan business. But before you decide where to get your money, make sure the business is reputable (especially when dealing with online lenders). Also, make sure their fees are reasonable.

How does a payday loan work?
Payday loans are a lot easier to get than conventional loans from a bank or other lending institution. Typically, all you need is some form of identification and a checking account. You will most likely need to provide the lender with a blank check that will not be cashed, but will be held as collateral, until you repay the loan. Most lenders won't require employment verification and will not do a credit check. The application takes only minutes and the funds are deposited into your checking account or given to you in cash immediately. So the process is quick, simple and painless.

How much does a payday loan cost?
The fees that lenders charge vary from state to state, but compared to conventional loans, they can be very steep. That is why it is prudent to check out all sources of payday loans should you ever require one. The fees that are charged are equivalent to interest rates on other types of loans. For example, if you borrowed $100 for a 14-day period (until your next pay day) and were charged $15 for the loan, you would pay back the lender $115. Annualized, that interest rate would be close to almost 400 percent! However, if you are in a temporary bind and need that $100 really badly, paying a $15 fee for a two-week period may be a good deal. Just make sure you are able to pay back the entire loan and the agreed-upon fee on time.

What happens if I can't pay the loan back as promised?
Individuals who default on their loans can roll the loan over for additional pay periods, but there will be extra fees charged, which now makes the loan less of a good deal. That's why payday loans should be entered into with serious forethought and after exhausting all other options.

There has been a lot of discussion in the media about payday loans and unscrupulous lenders who take advantage of their clients, especially those who live at the poverty level. The best advice to give someone who is considering one of these loans is to do it for as short amount of time as possible.

In the meantime, put away some money each payday to create an emergency fund, which will give you the reserve money should you ever need some quick cash. Remember that defaulting on your payday loan can adversely affect your credit score. Proceed with caution. But taking out a payday loan and paying it back promptly can also help improve a bad credit score. So these financial vehicles do have a place in our lives, as long as we understand the pros and cons.

Good luck!