Should You be Embarrassed to Turn to Payday Loans?

Unless you are one of the lucky few who earn more than $100,000 per year, you are likely feeling the pinch from the struggling economy. With unemployment numbers hovering right around ten percent, and with the lending market all but ground to a halt, people are discovering that it's harder to find solutions to their financial problems. Issues such as over due bills, medical emergencies, home repairs, court costs and vehicle repossessions are becoming more and more common, and people are sometimes forced to use payday loans as a last resort. You shouldn't be embarrassed to turn to a payday loan- but you should know how to use them properly.

There are certain times where you just need quick cash and don't care about the penalties that come with it. That may tempt you to skim over the fine print and just sign the paperwork, but before you sign anything you should know more about how payday loans work. Most are very short-term, averaging two weeks. The majority of those who use payday loans get paid biweekly; this term allows these people to postdate a check for the loan amount plus a fee. In some cases, thirty-day terms are available. To get either type of loan, you need to be at least eighteen years old and make a minimum of $1000 per month. Additional requirements vary depending on your location and your chosen lender.

The fees associated with payday loans can vary widely, but there are averages that you can use to get a rough estimate of what you will pay. The CFA (Consumer Federation of America) says that the average payday loan is $500, but they can reach from $200-$2500. The mean finance charge is $25 on every hundred dollars borrowed, which amounts to an astounding APR of 650%. However, there are lenders offering finance charges as low as $10 on every $100 borrowed.

While you shouldn't be ashamed to use payday loans when you really need them, there are some pitfalls to watch out for. Sometimes, people get a payday loan, pay it off, and then realize they need to borrow again. Instead of initiating a new loan, they just roll over the old one, and end up in a position where they must continually roll over the loan so they can pay on it. This is the main reason why payday loans should only be used when all other avenues of financial relief have been exhausted.