Everyone's been there: it's three days until payday and you suddenly get a flat tire. Your spare is long gone and you can't afford to be sidelined for long - but you can't afford to fix your tire, either. What can you do? At first glance, a payday loan seems like the perfect solution: write a post-dated check for whatever amount you need and a payday loan store will give you that money for a fee, cashing your personal check on payday. However, you need to understand the dangers of borrowing cash against your paycheck.
First off, the most obvious problem with payday loans is that they almost always carry a much higher interest rate than traditional loans or even credit cards. The cost of borrowing money against your paycheck varies from company to company, but is usually in the form of a flat price. For example, if you take a loan for $100 for two weeks, the store might charge you $115. Fifteen dollars doesn't sound like a lot of money, but it is the equivalent of an interest rate of more than 350%, which is outrageous. In fact, because of the high price of payday loans, they are legally banned in several states.
Many payday loan stores allow clients to "rollover" their loans, in essence delaying paying off their first loan while taking out another. If you're constantly short on money, this might seem like a lifesaver. However, if you keep rolling over your loan, more and more interest will accrue and you dig yourself into a deeper and deeper hole. Besides, if you don't have the money to pay off your loan now, how can you be sure you will have that money (plus enough to pay off the interest and the rest of your bills) in the future?
It is understandable if the cause of your cash shortfall is a one-time emergency; perhaps an unexpected visit to the clinic set you back temporarily. But if you are constantly running of money before your paycheck arrives, rather than relying on payday loans, you should examine your household budget. Are you spending too much on trips to the mall while ignoring necessities like rent or utility bills? If your priorities are in check, is your job paying you enough to sustain your standard of living? Instead of seeking help at a payday loan store, try helping yourself by paying more attention to your personal finances.
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