DebtQuit

You probably have seen the ads on the internet: payday loans or cash advance loans are "the rage" of the consumer financing industry these days. When I say "rage" that term is appropriate as the rates charged for these types of loans angers many consumer advocates. Should payday loans to be avoided at all costs or are there situations when these types of loans make sense?

As the name implies, a payday loan is meant to tide you over until payday. Maybe you are still a week or more away from receiving your next paycheck and already the rent is due, your car loan is in danger of defaulting, or maybe you had some sort of family emergency. No matter, you need cash and you need it now.

People seek payday loans when every other avenue of payment has been exhausted. The checking account is low, savings are nonexistent, and the credit line on the credit card has been tapped. At this point in the game, many consumers feel that their backs are against the wall, so they resort to payday financing.

If you are considering a payday loan, you need to consider the following:

• Loan rates are typically hidden in flat fees: borrow $100 and you'll have to pay that amount back plus as much as $30 in fees within 7 to 14 days.
• If you are late on your loan, interest will accumulate and fines could be levied.
• In many cases you can extend the loan period, but a renewal fee plus interest will be charged.

The result is this: If you need to borrow $600 for rent you could be paying an additional $180 in fees for that privilege. The net result is that your costs will be about $780 for a loan that lasts only a week or two!

One advantage to a payday or cash advance loan is this: approval can come very quickly (in as little as one hour) and the funds are deposited directly to your checking account. This convenience factor is a big appeal, but it has also hamstrung people in the past.

Finally, if you are considering a payday loan you could do better by simply selling something you have or borrowing the money from a friend or family member. If you choose to go with a cash advance loan make certain you read the fine print to fully understand what you are getting into.