Paycheck Loan

If You Take a Paycheck Loan, Make it a Small One

You may have noticed that there are many places to take out a payday or paycheck loan in cities across the country as well as hundreds of websites. There's a good reason for this phenomenon -- the lenders are cleaning up. This method of lending money is one of the most profitable in existence. So far there has been little to stop them, although some government agencies appear to be taking an interest. In fact a few states have actually outlawed these types of short term loans.

Since these loans are designed for the short term, the hefty fees don't sound so bad, especially to someone desperate for cash. These loans earned the name "paycheck loan" because the borrowed money usually comes due on the borrower's next payday, allegedly making it about a two week loan. They are meant to appeal to people living from paycheck to paycheck, with no rainy day fund to turn to in emergencies.

What borrowers forget is that if they only have enough money to carry them over until the next payday, they won't have the extra interest fees it costs to borrow. Not only that, but since they've borrowed ahead, they're unlikely to be able to pay it back in full. Now it's time for even bigger fees and penalties to kick in. Paycheck loan companies can double the original rate to write a new loan for the entire amount now due.

Most of them charge a flat fee, since if they state it as interest it sounds even higher. The average appears to start at about $30 per every one hundred borrowed. Most loans are for five hundred to a thousand dollars. In most cases borrowers need only have proof of a checking account and a pay stub or something to show they're employed and will be paid soon. To make it even more convenient, most lenders allow online application and electronic funds transfer. If paid back on time a $500 paycheck loan would require payment of $650 plus any application or other fees.

As if that weren't bad enough, someone that isn't able to repay their paycheck loan by the due date would pay considerably more. Typically the lending companies keep rolling the same loan over so that any payments go toward the fees and the original amount doesn't decrease. Or they may increase the original fee to $60 per hundred. However they decide to do it, it's a win-win for the lender. So, do be careful before you proceed with a "paycheck loan". If you have no other often, make sure the loan is small and plan carefully how you'll repay it on time.

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