Know the Risks of a Cash Til Payday Loan
By: Mark Woodcock | Posted: 07th March 2006
You might be in a difficult situation financially, and it's a few days away from payday. There are times when taking out a cash til payday loan is a quick, easy, and even sensible solution to your problem. If you are in danger of bouncing a check, or if you need to make a payment on a bill that is due before payday, and the late fee incurred will put you at risk of damaging your credit rating, a cash til payday loan can help you. However, it is important to know exactly what this type of loan is, what the terms are, and what the risks are before you decided to take this financial route.
A cash til payday loan is a short-term, unsecured loan, usually granted for a smaller sum of money (less than $500). Taking out this type of loan for such a small amount of cash is easy, because there isn't the paperwork and approval process involved as with longer-term bank loans. The borrower promises to repay the loan from his or her next paycheck. The loan is made when the borrower either gives the lender a check or a debit authorization for the amount borrowed plus the finance charge. The lender consents to hold the check or authorization until the borrower's next payday. When payday comes, the lender may either cash the check, or the borrower may get his or her check back by paying the full loan amount and finance charge. It sounds easy, and with little consequence, but there are some things to be aware of.
Typically, if you are investigating the option of a cash til payday loan, you have very little cash flow to begin with, and few other alternatives. Know what you are getting into. The most important thing to be aware of is the finance charge that is applied to the cash til payday loan upon borrowing. This fee can be as high as $50. So, if whatever you are taking out the loan for has a consequence less than the applicable fee, you might want to reconsider. And if you are not able to repay the loan right away, be aware that the interest you are charged continues to accrue, thus increasing the payoff amount (there is no refund of applied interest if the loan is repaid early). If this is not an issue, and you are able to pay the loan back immediately upon receipt of your paycheck, then perhaps a cash til payday loan might be the solution for you.
Obviously, there are times when a cash til payday loan is not a smart option. Don't borrow money against your paycheck for impulse purchases, or just to have some cash in your pocket. This type of loan can get very expensive very quickly, especially if it is not paid back promptly. You will find yourself in more dire financial straits than before. Therefore, only utilize this type of service for serious financial situations. Unfortunately, customers who take out cash til payday loans often do so repeatedly, and often use it as a method of getting credit extension. This is possible by paying only the finance charge to the lender, and providing a new check or debit authorization repeatedly. Instead of a temporary financial crisis, many borrowers are experiencing continuing financial problems with which they apply a band-aid in the form of a cash til payday loan.
A cash til payday loan is only a quick solution to a short-term financial problem. If you have a bill that is due and do not want to risk hurting your credit rating, if you have an emergency medical bill that must be paid, or if you are in danger of bouncing a check, a cash til payday loan may work for you. If you are aware of the finance charges you will have to repay in addition to the loan amount, and you are able to repay the loan immediately, this type of loan can be a useful, one-time solution to a tight financial state.
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Tags: risk, few days, paperwork, cash flow, sum of money, credit rating, unsecured loan, paycheck, finance charge, bank loans, little consequence, sensible solution, consents