Why Payday Loans may be a Good Alternative even if Interest Rates are High

Payday loans are essentially advances on your paycheck. You go to a payday loan center and give them a postdated check, or you e-sign a promissory note on-line, and authorize the loan company to take the money out of your account when it becomes due, usually on your next payday. Because these companies deal with high risk borrowers, the interest rates are very high. Some companies charge over 500% per year, although you will usually only pay around 20% on your loan, because you do pay it back in full on your next payday. At first glance there does not seem to be a reason why you would ever want to pay this much for loan, but there are advantages of borrowing money from a payday loan company.

The first and most obvious reason to use a payday loan center is a poor credit score, or no credit history at all. You cannot get a credit card, and banks will turn you down when you need money the most. To get a payday loan, all you need is a job, and a checking account.

The second advantage is the speed at which your money becomes available to you. You fill out a short form. You will need to show the loan agent identification and your last two pay stubs. If the loan agent is able to verify your job, you can walk out with your money less than half an hour after you have entered the establishment. This is especially helpful in emergency situations, when you need money fast.

Another point in favor of a payday loan is that you can borrow a small amount of money, usually between $150.00 and $1,500.00, depending on the size of your paycheck. Most states regulate what percentage of your gross income a payday loan center can let you borrow. In most states, the amount is right around 25%.

Since you pay back the full amount of your loan on your next payday, there is no long-term commitment. Your debt is paid in full, so you do not have to worry about how you will make the next payment. If you need to, you can take out a new loan at the same time that you pay your old one back. If you can manage to take a little bit less out each time, you will soon be out of your financial crisis.

Finally, you do not have to have collateral to get a payday loan. If you have to default on your loan, you will not have to worry about losing your car, your house, or other valuable possession. Most companies will work with you to devise a payment plan to pay off your debt to them, if you call them and explain your situation.

Although there are good reasons to take out a payday loan, you should only do so if no other options are available to you. Use a reputable company, do your research, and do not take out more than one payday loan at a time.