What Every Consumer Should Know About Payday Loans

A Crash Course on Payday Loans and Alternatives

They seem to be in every neighborhood and their commercials invade our TV, but are payday loans really the great idea they make themselves out to be? The industry has come under fire from many consumer advocates, claiming these companies are nothing more than predatory lenders at their worst. Others insist they offer a much-needed service. Who's right? They both are.

A Shade of Gray

Payday loans are not a "black/white" topic -- they are more of a shade of gray, although many would agree a darker shade of gray than most. Payday loans definitely have their drawbacks, and they could be considered a predatory lending opportunity by some, but the fact of the matter remains that payday loan companies offer financing to consumers who wouldn't be able to get emergency cash anywhere else.

Say you need a car to get to and from work. That car breaks down and you have no way to make a living. Your credit cards are maxed out and your credit is shot, so there's no way you can get a traditional loan and you have no family to lend you the money. Payday loans may be your only option. It's either that or lose your job -- and no one wants that to happen.

Protecting Yourself

So, now that we admit that payday loans do indeed have their place in the world, the key is protecting oneself from falling victim to the pitfalls normally associated with them. Half the trouble is that the people who take out payday loans intend to pay them back right away, but they don't. This racks up the finance charges and turns the loans into a financial nightmare.

If you do have to take out a payday loan (and that should be as a last resort) do yourself a favor and pay the loan back as soon as you possibly can. That doesn't mean a few months from now -- that means pay it back with your very next paycheck. Even if you can't pay the whole thing back with your next check, pay as much back as you possibly can.

By paying off the payday loan as quickly as possible, you're minimizing the cost and making use of the loan the way it was intended to be used -- as a short-term financial emergency tool.

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