Guest Author - Rhonda Cliett

If you are living from paycheck-to-paycheck then the following scenario is probably familiar to you.

It’s Tuesday and your water bill is due. In fact, according to the notice you received last week, if you don’t have your payment at the water department office by 5:00 today, your water will be disconnected. Your pocketbook is empty and you do not have enough money in your checking account to pay the bill. Payday is in three days. What do you do?

Sadly, this is the type of scenario that makes people obtain a payday loan in order to get through the current problem.

What is a Payday Loan?
A payday loan is a short-term, high interest rate loan. It is also commonly called a cash advance loan, a post-dated check loan, or a deferred deposit check loan. The amount you can borrow is usually between $100 to $1500.

How do you get a Payday Loan?
These loans are highly advertised and easy to obtain. Most towns and cities have several businesses that offer these types of loans. You can also obtain a payday loan over the internet. To qualify for a loan you usually just need a verifiable income, a checking account, and a working telephone number.

What happens if I cannot pay back the loan?
You might have the option of extending the due date. This is also referred to as refinancing the loan or receiving a rollover on the loan. The option to refinance or rollover your loan will depend on your state of residence. Keep in mind that extending the due date will significantly increase the amount of finance fees you will pay.

What is the problem with a Payday Loan?
The problem is that the loans are issued at a very high interest rate, along with a fee. While the interest rate will vary depending on state law, they will always be much higher than a long-term note or even the rate on a credit card. Using actual figures from a payday lender in the state of Texas, a 14-day loan for $100.00 would cost $20.38. This is an APR of 531.34% and a finance charge of $20.00. The more you borrow, the higher the finance charge.

Payday loans may seem like a good option at the time but they really end up hurting the borrower. Not only are you paying a high price for the loan, but you aren’t doing anything to help your current situation. As a result, you end up in a vicious cycle of trying to make ends meet each month.

What options to you have instead of a Payday Loan?
Short-term Options: Try to find a less expensive means of borrowing money such as an advance from your employer, a loan from family or friends, or a lower rate on a loan from your bank or credit union. You can also ask for an extension of time on the due date of your bills.

Long-term Options: Get your finances in order by establishing a realistic budget and sticking to it. Find ways to decrease your spending and/or increase your take home pay. Get organized and set goals.

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