To Get Or Not To Get A High Interest Loan?

high interest loan

Over the last few years, ‘Pay Day’ has turned from little known to a booming industry in its own right, going by the fact that today, there are more than 22,000 firms that are in the pay day loan arena.
If to you pay day means the day you cash your check, then you are lucky. And you stand on solid ground on matters regarding your personal finance! However, if pay day brings another term – loan – to mind, then you have some fact-finding reading about a high interest loan to do.

What Exactly Does ‘Pay Day’ Mean?

Pay day loan is an oxymoron really… actually means the opposite. You know … something like … “clever fool”.
Pay day loans will be referred to by other terms like advance pay, cash & go, cash carry, instant cash, cash carry, accommodation loans and loan up. Pay day loaning means a kind of temporary lending/borrowing without collateral. This temporary loan is not secured to a person in need, on bad credit footing/very low credit card score and insolvent.
It doesn’t matter under what name this high interest loan is referred to, but the truth is … it is a large industry that generates $6 billion in charges and interest from an approximate figure of $40 billion that is advanced out, annually. Big, no? and remember, this number may have risen by now.

Why Is Pay Day So Popular Then?

There are mainly three reasons for this. They are:

  1. Low regulation of the industry players means that many providers spring up at every corner of town. State and federal oversight is not very tight and this makes it easy for providers to set up a shop and start giving cash advances.
  2. The trends have changed, if they had ever been right, and millions of American citizens live from one paycheck to another meaning that they have no money to spare for any emergency that may arise in the middle of the month or at a time when payday is several days away.
  3. When it started, it picked up fast because it offered a more flexible way to get loans than the hitherto cumbersome process of borrowing just a little money to get by from the traditional lenders. Little or no paperwork, the speed of execution and many other favorable factors have made the Pay Day loans popular with many Americans.

Pros And Cons Of Getting A High Interest Loan

The Pros

  1. It helps a majority of people who have no other choice meet their personal finance needs as they arise before their next paycheck.
  2. The terms of offer and repayment are very simple, no security or insurance required
  3. Fast – get it reviewed fast and deposited into your checking account fast
  4. Because of little monitoring and oversight, there are many pay day providers

The Cons

  1. Pay Day loan borrowers eventually turn to abuse the service because they can readily get the money and are therefore not ready to skip even some of the things that they do not need. They forget that a debt is a debt and will must be repaid.
  2. The borrower’s FICO score does not improve even after the loan is paid, given that the cash is advanced on the basis of bad credit.
  3. Exorbitant rates of interest are levied in the name of processing costs considering that usury/loan sharking is illegal in many states.

How Can You Avoid High Interest Loans?

  • Try borrowing from family first as they will not offer you money at interest rates. Again, a family member could be having less than you need, thus prompting you to borrow less than you would have done with the readily available pay day money.
  • Find out why you always seem to need money. Is it that you have more expenses than your paycheck can handle? Are you driving a bigger car than you should? Do a pen and paper analysis about your lifestyle and personal finance. You may stumble onto something.
  • If you find yourself in dire money needs all the time, you should go for credit counseling. The expert will try to find loopholes in your spending habits that you can seal and have some money remaining.
  • Budget, budget! I know… sounds like your mother, but this will help you know how much expense you have every month and how you can cut out what you do not need and just go for what is important. With proper management of your personal finance, you may have even some remaining to keep aside for emergencies.
  • Establish thresholds for using your MasterCard charge card. For example, determine that you will never use a card unless it is for expenses more than $30.
  • Always remember that charge card companies are just a twin to the Pay Day providers in more ways than one. Thus, you must always settle a big chunk of the Visa adjust each month.

Only go for a high interest loan as the last resort, when you have tried every other means to get money and you cannot. It should never be a regular run-to thing under whatever circumstance.

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