Payday Loans - Scams or Simply Misunderstood

Payday loans are small cash advance loans. Usually the loan is secured by the borrower writing out a check that is dated for their next payday, as collateral. These types of loans can be very helpful in some situations, although extreme caution should be taken when deciding to borrow money this way.

Payday Loan Fees

For a fee of between $15 and $50, the borrower can get money for an emergency or money shortage to tide them through until their payday. If borrowers decide to roll what they owe over for another fortnight, they are responsible for another fee at the same rate.

Who Needs A Payday Loan?

The need for this type of service has arisen since banks and other lending institutions generally don’t lend small amounts of money on these terms. The trouble with a payday loan is the interest rates they offer is extremely high, the amount of interest is calculated at around 300% per annum.

Often borrowers fall into the trap of borrowing money from a payday loan provider every fortnight, in order to stretch their income further, in this case a payday loan is a very dangerous choice. People who get caught up in the trap of borrowing money from these companies, and rolling the money over more than once run the risk of getting further in to debt.

The RIGHT Way To Use A Payday Loan

The only way to borrow money from a payday loan company is to understand the associated costs, and only do it in an emergency, where the option of borrowing money from friends, colleagues or family, and giving them a forward dated check is not available.

Care should be taken to make sure that the company is legitimate; one of the leading causes of fraud is from companies posing as payday loan companies. Find out where the company is situated, ask for their company phone number before signing up, and try ringing it. Look over the Internet for reports or information on the company, and from other people who have lent money from them.

Be very wary of payday loan companies that ask for a fee before forwarding money to the borrower, and avoid giving out bank account numbers. Borrowers should opt for wire transfers from western union rather than give out bank account numbers and details as they run the risk of a fraudulent company accessing their accounts and creating further money problems. Some payday loan companies are scams, and the borrower lends money at their own risk, so care does need to be taken to choose legitimate companies.

The best way to deal with a payday loan company is to understand how their fees and charges work. Know exactly how much it is going to cost you to borrow the money, and what will happen if you can't pay it back after payday. Be very choosy with payday loan companies, some offer you a better deal than others.

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About the Author
Liz Roberts is a loan consultant with NewHorizon Finance and has been providing consumers and business owners with financing since 1989. Bad Credit? Join our mailing list for tips on building and repairing your credit yourself, without hiring a credit repair service. Click here for a list of bad credit credit cards
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