Being stuck for money during an emergency situation is never an enjoyable experience. While not enjoyable, the situation may be inevitable. If a car breaks down without warning, the vehicle needs to be fixed. Delaying the repairs may be impossible based on personal and professional issues.
This is but one example of when a need for emergency funds arises. The sheer volume of fiscal emergencies a person might have to contend with is almost impossible to fully categorize. All the emergencies have one thing in common. A struggling person is stuck with bills he or she is seemingly unable to pay.
Paying out of an emergency savings accounts is not possible when funds are lacking. Borrowing is the only option left and, for many, taking out a payday loan seems to be the only way to actually borrow. Doing so is rife with problems. Payday loans do not exactly provide the best terms. Millions of people still take out payday loans. Often, they regret doing so. These loans are incredibly costly.
What Is A Payday Loan?
A payday loan is based on an really simple concept. Unable to be approved for traditional unsecured credit, a borrower takes an advance on a payday loan through a third party. The lender charges interest and, in some cases, processing fees for the loan. Once a paycheck is issued, the loan can be paid back.
All of this sounds simple because such loans really are simple. As long as the borrower has a job, has held the job for about two weeks, and has a checking account in which to receive the funds, most lenders will approve the advance. Unfortunately, the costs associated with these types of loans are enormous.
The High Cost of a Payday Loan
Payday loans are so expensive they are dubbed “predatory” loans. In other words, these loans exist to take advantage of low-income borrowers. The annual interest on a payday loan could be upwards of 300% to 400%. This of the finance charges on the loan. Even someone who pays the loan off as quickly as possible ends up paying huge sums. Not being able to pay the balance off within two weeks turns the emergency loan into a financial nightmare.
The massive expenses associated with these loans reveals they are risky. Rather than immediately jump into the payday loan money pit, it may be prudent to look at alternative borrowing options.
There are alternatives to traditional payday lenders. Nonprofit and community organizations designed to help those who are financially troubled do exist. These entities may offer low-interest loans or even provide outright financial assistance. For persons stuck in a terrible financial bind, these organizations could prove to be the far better sources of aid.
Consider it a wise move to look into organizations capable of helping out long before an emergency arises. By their very nature, emergencies are time sensitive and stressful. Looking for the best deal is not as easy as finding the quickest option. This is how people end up at the door of payday lenders. Anyone who worries about his or her financial situation should do a little planning. Looking into alternative borrowing or assistance options should be part of that planning.