iaam exclusive
By Jennifer Tressen
Why payday loans aren’t the quick fix they may seem to be?
Payday loans. You’ve probably heard of them, but what are they? How do you get one? Are they a good thing? A lot of people live paycheck to paycheck, which means they depend on the money coming each payday. It’s a difficult situation when something unexpected occurs: your car breaks down, someone becomes ill and needs medication, or the refrigerator stops working. These are situations that need to be dealt with immediately, and unfortunately, they can be quite costly. When living paycheck to paycheck, someone might seek out an advance on their next check to be able to cover the unanticipated expenses. Thus, payday loans may seem like a sound option. But they are one of the worst decisions you can make regarding your financial future.
Payday loans, also known as cash advance loans, check advance loans, or post-dated check loans, may appear nice on the surface—but it’s the fine print that kills your financial security. You’ve probably seen the advertisements on television, the Internet, and in magazines. They claim that getting a loan is quick and easy—because it is. All that is required to obtain a payday loan is proof that you receive a regular paycheck. So, prove that you’re employed, and congratulations, you’ve just been approved for a loan. It’s that simple. Most people don’t even consider the long-term implications associated with borrowing, especially when it’s only one or two hundred dollars. But just like any other loan, the money must be repaid, plus interest. This is the real trouble. Payday loans carry an average interest rate of 433 percent. That’s just an average! It can be as high as 700 percent. If you must use a payday loan for some reason be sure to pay it off immediately after you receive your paycheck otherwise the interest will simply put you in a worse financial situation.
Payday loans tend to target the low to lower middle class paycheck-to-paycheck individuals who, for whatever reason, find themselves hard up for cash between each payday. More and more though, teenagers and young adults are finding themselves drawn to these small offices that carry promises of instant cash. It makes sense; instant cash is much more appealing than having to wait a week or two to be able to take someone out on a date, buy a new outfit, or fill the car up with gas. Unfortunately, many of these young people lack financial education and see this opportunity as something that can be taken advantage of not just once, but on a regular basis. It is not until they receive the interest bills that it really clicks in their minds. And most of the time, at that point, it’s too late. The financial and credit damage has already begun. It’s a big hole you have to dig yourself out of, so avoid them at all costs. Start your own savings account by putting a little bit of money away each week or taking a small amount out of each paycheck. That way, you’ll be able to borrow from yourself when you’re in a tight spot. And the best part is, there’s no interest!
