Is it Wise to Take Out a Payday Advance Loan?
A payday advance loan is exactly as the name implies. It is a loan that is given out on a short-term basis, meaning that the borrowing period is normally two weeks - which is the amount of time between paydays for most people. If you need money in a hurry and have nowhere else to turn, a payday advance loan may look very attractive to you. But what is the 'catch'? The answer to that question is simply: the interest rate charged.
In fact, it is very common to be charged 500% interest per year or more on a payday advance loan. To illustrate, if you borrow $200 for two weeks at 500%, you will be charged $38.36 in interest. If you have trouble paying back the loan and refinance it four times, it will cost you nearly $200 to borrow the $200 for ten weeks. So, the lesson to be learned here is that a payday advance loan may be a helpful tool when it is evident you have fleeting cash flow problems or if you are in fact facing a monetary emergency and only need that money over the short-term, but you should be sure that you are going to be able to pay off your loan in full when it matures.
Sadly and too often, consumers who must borrow money this way are usually having severe financial problems. The high rates make it hard for many to pay back the payday advance loan on time, which puts many people on a perpetual debt treadmill. Many borrowers end up paying far more in fees than what they originally borrowed, which puts them in worse shape financially then when they started.
Back to the question as to whether or not it is wise to take out a payday advance loan. The answer depends upon whether or not you can pay the loan back on time. It also depends on what you are thinking of using the money for. For instance, if you simply want to go out and spend a few hundred dollars on some items you do not need and you already are in pretty deep debt, then you probably should not take out a payday advance loan.
The general consensus is that this type of loan should only be used as a very last resort and for emergency purposes only. If there is absolutely no other way to come up with the money you need and if you will suffer in some way by not coming up with the cash, then a payday advance loan may be justified.