A recent survey by Consumer Focus discovered that payday loans in the USA are on the rise, having increased fourfold since 1996. Payday loans are a quick and easy way of temporarily improving your financial situation, whatever your credit rating or predicament, and with banks holding back on lending in the current climate, have quickly become one of the only safe ways to borrow for those in need of a financial boost in a hurry.
Situations like an unexpected bill or household expense, when your payday is still weeks away, can lead to financial and emotional stress. Payday loans can alleviate this problem by giving you access to the money you need in a short space of time (often on the same day or quicker), through a simple application process that often requires nothing more than proof of earnings and an active bank account.
Consumer Focus found that this method of lending is increasingly popular with young business people, with a majority of borrowers being under 35, single and with no children. They tend to borrow in order to fill a shortfall in their wages and to fulfill short term needs, rather than more long term investments, and almost 70% have an income that falls below the national average of $25000 p.a. Most borrowers are repeat borrowers, a situation which has caused concern among detractors of payday loans, suggesting that this form of lending actually encourages long term financial problems, rather than simply being a short term solution.
If you are looking into taking out a payday loan, it is most important that you are certain that you will be capable of paying back the full amount of the loan when your pay cheque clears. Although banks are not lending as much as they were pre-recession, it is always worth asking for an extension on your overdraft before turning to a payday loan, as with an approved overdraft you will not face interest on your borrowing. Interest rates on payday loans vary from company to company, but you should expect interest of around 25%. This means that if you borrow $100 you will pay back $125, or for a larger loan of $300, interest will bring your repayment up to $375. It is also worth checking what your options are when it comes to unexpected bills or payments, as many companies will allow staggered payments, or will work out a repayment plan with you that fits better with your needs. If these options have been exhausted and you are certain that you will be able to pay back the loan on your next … read more