Over the last couple of years we’ve all been bombarded with numerous emails, banners, and event TV and radio commercials offering to save our immediate cash shortage by offering so called payday loans.
Obviously, the offers indeed sounds very interesting, if you have a phone and a checking account, the money will be transferred to your account by next business day.
However, the ads always fail to mention the astronomical cost that you’ll endure by taking out such a loan. Due to legal issues, the interest rate on such loans is usually similar to credit card rates. It is obvious thought, that these lending companies will not make sufficient profits by lending the money for 2 weeks at annual rate of 10%. Therefore, in addition to the regular interest rate, these companies charge so-called service fees. These range of the fee depends on the company you deal with, however, they often end up being much higher than your interest payment.
Furthermore, if you take a payday loan with the term of 2 weeks, until your next paycheck that is, the chance is that you won’t have enough money to make the payment and still have enough to live on. After all, if you had the money, you wouldn’t need the loan in the first place. In this case, the lending companies are more than happy to reissue the loan to you or extend its due date by another two weeks. Obviously, in order for them to cover their time of processing your loan again, they will once again charge you with the astronomical processing fee. After a while you realize that it’s been a few months and you still haven’t been able to repay the loan, yet your account is being charged every two weeks. After doing some simple calculations by combining the charges, you see that you’ve already paid more than you’ve borrowed, yet you still owe the principal.
After reading this, one will rightfully have a question of how to get immediate funds without being getting into endless debt by predatory lenders. There is no one single right answer. However, there are some options available, which might come into use. If you already have payments due or bills to pay, try calling your current creditors and see if you can postpone the payment, or even temporarily freeze the payment schedule. If you’ve always been paying your bills on time, the chance is that your creditor might give you a one time break. If the situation is that you need money right away, and you can’t take it out of your budget, you can always considering borrowing from you family and friends.
In order to avoid such situations when you have to turn to lenders or others for help, it’s better to always have at least some savings, in case a financial need should arise. Credit cards are also a good way to solve temporary financial constrains, especially considering that there are no fees or interest to pay if the bill is repaid within 30 or so days.

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James Olak is the owner of unsecured loan