Payday Loan - Should You Take One

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Loan Terms
Listed below is a guide to loan terms. It is a useful list of definitions of loan terms that may or may not be familiar to you. Keep it nearby as you will never know when you might need it for quick reference.

Accrue

Process in which interest accumulates on a borrower's loan.

Amortization

A repayment method in which the amount you borrow is repaid gradua... Read loans article



How To Choose the Right Auto Loan Online
Buying a new car or a used car need not give you headaches anymore. Getting auto loans has become easy; you can now choose from online auto loan lending networks or get an auto loan from your car dealer. And there are many auto loan options available to choose from.

The competition to provide auto loans has boiled down to better, and faster, deals for car loan borrowers. So if you apply... Read loans article



Payday Loan - Should You Take One
Payday loans have many names -- cash advances, signature loans and paycheck loans, etc. Payday lenders provide quick and easy short-term cash to those who need money immediately. That's the big reason why they're so popular.

However, payday loans come at exorbitant costs. This can -- and often does -- lead borrowers into a downward spiral of rapidly escalating debt. Let's look at the issue from various angles to get a complete picture.

First, the pluses. Here's why cash advances may hold enormous appeal for you.

You can have bad credit and still qualify for a payday loan. In most cases, no credit check is conducted.
The process is fast -- it takes as little as 20 minutes to complete. You can even find lenders who target approvals in 30 seconds!
There are no upfront costs -- so the buy-now-pay-later mentality can find full expression.
You can apply in person at a local outlet, over the phone or over the Internet.
You get funds deposited into your bank account in 24 hours.
Compared to some other sources for cash, payday loans are discreet -- no one else needs to know about it.
The transactions are secure -- your financial information remains private.
If you're faced with an emergency -- say, unexpected medical bills -- your only consideration might be to get money now. The speed and convenience of a cash advance comes in handy here.

So what are the disadvantages?

The most obvious one -- high costs. A payday loan can cost you say, $15 per two weeks. If you're borrowing only for two weeks, that doesn't sound like much. However, if you calculate the Annual Percentage Rate (APR), you'll see it comes to 391%!

If you don't think that's too much, let me ask you this question. If you invested money in the stock market, what would you consider a good annual rate of return? 20%? Maybe 30%? If you made a 20% return (on average) in stocks year after year, you'd be doing very well indeed. And this is for an investment that's generally considered high risk.

Now compare that with what the payday loan companies charge. You are providing them with a return on their money they likely won't get anywhere else on the planet!

There is another, less obvious reason why payday loans are dangerous. According to some estimates, over 60% of borrowers roll over a payday loan. Many take loans repeatedly, too.

Let's put in some numbers so that you can clearly see what rollovers imply.

Assume you borrow $400 for two weeks at a cost of $15 per $100 per two weeks. At the end of two weeks, you owe them a total of $460.

Let's say you don't repay the $400 at the end of two weeks. Instead, you request a rollover. So you pay them the lending fee of $60 and they agree to roll over the loan for another two weeks. The total cost of the loan at the end of 4 weeks may be as follows:

Original loan amount: $400
Fresh lending fees payable: $60
Late fees payable: $60 (assuming late fees apply at the same rate as lending fees)
Lending fees already paid: $60
Total: $580

At the end of this period (which is 4 weeks from the day you originally took the loan), you decide that you don't have $580 available and so request them to roll the loan over for another two weeks. Then this is what it can cost you in total at the end of 6 weeks:

Original loan amount: $400
Fresh lending fees payable: $60
Late fees payable: $60
Lending fees already paid: $120
Late fees already paid: $60
Total: $700

If you continue this process for six months (more specifically, for 24 weeks), this is what it may cost you in total:

Original loan amount: $400
Fresh lending fees payable: $60
Late fees payable: $60
Lending fees already paid: $660
Late fees already paid: $600
Total: $1780

For an original loan of $400, in a mere 6 months, the payday loan company will collect fees and charges of $1380 from you. That's 3.45 times the amount you borrowed. In APR terms that's 749.5%! If over 60% of borrowers roll over their loans, no wonder many payday loan companies are wildly profitable!

Snowballing costs can easily lead you into a debt trap if you get addicted to payday loans.

So what are the key points to keep in mind when dealing with payday loan companies? Two things:

First, avoid them if at all possible. The best way is, of course, to get your finances fully under control so that you always have cash and / or credit available to meet emergencies.

Second, if you do choose to borrow from payday loan companies, borrow only an amount you're 100% sure you can repay on the due date. If that amount is too low to meet your needs, get additional funding from other sources. Because rolling over cash advances is one of the worst things you can do to yourself.

About the Author

Prakash Menon is a financial expert and writer specializing in managing personal debt and providing wealth building solutions. He has written articles on cash advances, personal debt management and other topics.

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Home Equity Loans - Secrets Revealed

A home equity loan is essentially a type of second mortgage. You'll be borrowing money against the value of your home. This carries risk, but can be worth it in the end if you know what you're doing.

The most common type of home equity loan is a "closed end" home equity loan. This type of loan essentially allows you to borrow a certain amount of money against the value of your home. You cannot borrow more money on the same equity loan, so if you need more money later, you'll have to try and take out another loan.

Most people find that getting a home equity loan can go a long way toward helping them to get out of debt. Since you're borrowing money against your house, there is a greater chance that you'll end up with a lower interest rate than you're used to. This will probably result in a much lower monthly payment than most other loans.

One reason to get a home equity loan is if you are in a lot of debt and have several high interest payments to make each month. If you can get enough money in an equity loan to pay off your other debts, you'll be able to effectively consolidate all of your debt into one low monthly payment.

It is essential, however, that you make sure that you're able to meet your monthly payments after you get a home equity loan. After all, if you start missing payments, you might lose your house. Therefore, you should make a very careful assessment of your financial situation before you apply for the home equity loan. If you do not think that you'll be able to pay even the low monthly payments on this loan, then don't take the loan. If you're considering the laon for debt consolidation purposes, you might be better off looking at one of the many other debt consolidation options that are available to you.

The closed end home equity loan is not the only loan of its type. If you are looking for something that's a little more flexible, then you might want to go with a home equity line of credit instead.

A home equity line of credit works very similarly to a loan, and can definitely help you reduce your interest rates and monthly payments. The major difference, however, is that a line of credit will allow you to borrow more money against your house when needed - in some cases, up to 125% of your home's value.

While a home equity loan is better in most cases, the line of credit is a good idea if you're not sure how much money you need to borrow right away. With the line of credit, you can increase the amount of money you've borrowed against your house easily.

You will more than likely also want a home equity loan if you have a lot of credit card debt. While credit card interest rates are traditionally very high, home equity interest rates are fairly low. Since it's likely that you've ended up with several credit cards, you will probably have a lot of debt that you can easily consolidate with one home equity loan.

A home equity loan may be right for you if you need to consolidate debts quickly, and you're sure that you'll be able to pay off the home equity loan without missing any of your payments. If you are taking the loan for debt consolidation, be sure you have the discipline to use all of the loan for that exact purpose!

Peter Sachford is the owner and operator of AAA Home Equity Loan which is a popular and comprehensive resource for information on home equity loans. For more information, go to: http://www.aaahomeequityloan.com


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Payday Loan - Should You Take One
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