Advertisements for cash advance pay day loans are everywhere. The internet offers quick easy cash in hours with no credit checks required. Pay day loan stores are seeping into many neighbourhoods where previously they were more likely to be found near strip malls. Check cashing outlets are now a regular sight. They do provide a service but it is a service you need to be wise to before you consider using it, and be aware of the problems to be avoided.
Across America different states have different laws pertaining to cash advance pay day loans: indeed in some states they are illegal. The internet provides access to those in states which do not permit the industry. Arguments rage for and against the use of pay day loans as they can work out to be expensive debt traps. For others they are a legitimate source of emergency borrowing which suits them when handled properly.
If a person uses a pay day loan in the right way there is no problem. A borrower will apply for a loan which will be repaid in full, plus a fee, on an agreed date, which is the next pay day. Only those with a proven monthly income of a minimum amount are eligible for a pay day loan, plus they must have an active checking account. If the transaction is conducted in person then the borrower simply leaves a post dated check with the lender to cover the amount borrowed plus the fee, which is known in advance. When the next pay check is received the borrower takes back the postdated check and pays the lender in full in cash.
If however, the borrower does not return and pay in full then the lender can cash the postdated check, and problems begin if there are not enough funds in the checking account to cover the check. The bank will levy a bounced check charge and the payday lender will apply late payment fees. Thus a new financial problem is created, as if the borrower could not afford to repay the loan in the first place he now faces repaying a much larger amount. To do this he may have no recourse but to take on a second loan and suddenly the cyclic debt trap has begun. The same problems would occur if the loan was made on the internet and the automated payment did not clear. Suddenly the pay day loan itself becomes the cash crisis and the bill to be prioritized.
Where real problems have occurred through the use of payday loans it has begun with this pattern of repeat borrowing, which often then leads to additional payday loans being taken through other lenders. There are instances of borrowers owing the whole of their next month pay checks in payday loans. The bulk of these loans will then comprise fees and the original amount borrowed dwarfs in comparison to the seemingly impossible debt which has grown to such huge amounts. This can then lead to bankruptcy.
To avoid this kind of problem one must only use a pay day loan for a one off emergency. If there is any doubt that the amount cannot be cleared in full on the due date then no emergency really warrants this type of borrowing. The sort of person who is regularly in a financial mess should keep away from these loans as will probably lack the discipline to keep on top of them. If you are considering a pay day loan use them in a sensible way to cover a one off crisis only and never allow them to become your normal way of borrowing as there lies the way to unmanageable debt.