Borrower Beware: Information on Payday Loans

Some people file bankruptcy due to an unexpected hardship, such as losing a job or an illness that drains funds. But for many Americans, the hole they find themselves in before filing bankruptcy came from spending habits that boiled down to spending more than they made.

Many people find life after bankruptcy to be a challenging task. On top of having to rebuild their credit, the relief caused by bankruptcy and the subsequent wiping out of all their consumer debts via chapter seven can leave some struggling not to fall back into old spending habits.

If you are one of the many Americans who have claimed bankruptcy due to bad spending habits, you'll need to do more than wipe away your current overwhelming debts. Filing chapter seven bankruptcy will only clear away the debt - for some it can be much like curing the symptoms of a disease without actually curing the disease itself - the desire to live a lifestyle that may not be in tune with your income.

Payday loans, also known as cash advance services, are a type of short term loan you can take out that typically must be repaid on your next payday (thus the term for them). These types of loans are guised under the purpose of being a much needed source of a cash advance in case of an emergency. But, a frightening trend among consumers has been the use of payday loans to buy items they don't want to wait for or truly need. Additionally, many consumers find themselves using payday loans to keep themselves afloat with other creditors.

Cash advance services can be very dangerous if a consumer isn't careful. In addition to giving many consumers a false sense of security about their finances, the charges for these types of service are extremely high compared to traditional loans with most companies charging anywhere from 10-30 percent of the loan amount as a service fee. So, if you take out a payday loan for 500 dollars from a company with a 25 percent service fee, you'll be required to pay them back a total of 625 dollars!

Additionally, many lenders have been found to automatically renew the loan - simply withdrawing the finance charge from the borrowers account and extending the loan for another paycheck period.

There are very few instances when a payday loan is a "smart idea". We recommend that you think hard before taking out one of these types of loans and only do so if you have an absolute emergency and have exhausted every other way to get your hands onto the funds you need.

Some examples you should not consider emergencies:

You need money to pay for an upcoming birthday party or family gathering - either tone down the gathering, reschedule it if possible or change it to be less expensive.

You are going on vacation and need spending money for while you're gone and your next payday doesn't hit until after you leave - you should be budgeting ahead for these types of items.

You've fallen behind on a credit card or loan payment - you should look at why you are late on the credit card payment and adjust your spending habits accordingly while working with the lender to ensure you can catch up. Remember that the late fees charged by the lender in many cases will be less than the fees you'll encounter from taking out a cash advance.

NationalPayday.com, a provider of cash advance services suggests, "All payday loans should be used on a short-term basis only. Because payday loans are for small amounts and due on your very next payday, they should be based solely on need and urgency and should not be taken out for extended periods. It's in your best interest to pay these loans off in full, or more than the minimum when extending."

But even services like National that attempt to be on the up and up with borrowers keep with the standard of extremely high APR's (see bottom of their page for APR information) and heavily advertise to those seeking "no credit check loans" - which would infer that they know that their target market is consumers that may need to assess their reasons for debt more than they need to grab a quick and high interest loan.


It is extremely important that you avoid cash advance services whenever possible. And should you find yourself with an absolute need to use one, it should be a rare occurrence and one that causes you to look at your spending habits as a whole and figure out how to keep yourself from having to do so again by budgeting your funds better and keeping an amount set aside for emergencies like the one that forced you to take out the cash advance for the future.


Related Articles:

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+   Learn tips for restoring your credit after bankruptcy
+   Find out how much bankruptcy will really cost you
+   Getting approved for credit cards after bankruptcy