Payday loans provide a quick solution for people who need instant cash. Money can easily be borrowed from lending agencies within a short period of time. Payments for payday loans are made via post-dated checks. When a borrower gets money from the lender, he or she will leave a post-dated check that can be cashed by the lending agency on his or her next payday. On the next payday, the borrower can choose to redeem the check by paying the total amount of money borrowed plus the interest rate in cash. Likewise, the borrower can also refinance the loan to extend it until the next payday. This would, in almost all cases, mean that the interest rates will be doubled. However, before resorting to payday loans, borrowers are advised to first check if they have already explored all other possible sources of money. Payday lending agencies charge high interest rates, and unless the need is very urgent, it may be better to borrow from family, friends or traditional banks. Because payday loans are easy to get, they are called high-risk loans. Lending agencies do not require much from the borrowers. Because of this, the law allows the lenders to charge high interest rates. The Federal Trade Commission in the United States has advised against using the services of a lending agency to get payday loans. They suggested using other sources of loans such as credit unions. If the employer of the borrower also allows pay advances, it would be better to take advantage of that, than to take a payday loan. Some people also criticize lending agencies as traps for young people who do not really have a deep understanding of the lending market. Others even brand lending agencies as loan sharks because they charge exorbitant interest rates. When the loan reaches a year, the interest rate may reach as high as 250%. Lending agencies counter such claims by saying that the costs of payday loan processing do not differ much from mortgages which are actually long-term loans. They also argue that if they were to implement the same interest rates these long-term lenders give, the business would no longer be profitable. |
