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"Payday Loans:" Some Pros, but Mostly Cons

The Castle Law Office is a St. Louis bankruptcy law firm that helps citizens in Missouri and Illinois get through the bankruptcy process with terms that are favorable to them. We have helped thousands of people in the greater St. Louis area file for both Chapter 7 and Chapter 13, and we have also helped them learn smarter ways to handle their money and re-establish credit once they have successfully filed. If you live anywhere near St. Louis, whether you are in Illinois or Missouri, contact the Bankruptcy attorneys at the Castle Law Office for a free legal consultation today.

It is the rare sort of person who hasn’t found themselves strapped for cash. A car repair bill comes in, or the water heater breaks, or you have to buy somebody a birthday gift; these are just some of the many unexpected expenses that seem to come up on a pretty regular basis.

Since so many of us are living with our dollars stretched pretty thin, we don’t have savings or an emergency fund that we can dip into in the event that we need cash quick. This is when some of us reach for the credit card, which can certainly be a dangerous thing to do if you don’t keep it under control. For those of us who don’t have credit cards, or God forbid are already maxed out on our credit cards, another option is the payday loan.

A payday loan is basically a low amount loan (usually between $50 to $500,) with very high interest. There is no shortage of places to get one. It actually seems that payday loan places have more office spaces available than McDonalds or Starbucks. It works by advancing you money that you will receive on your paycheck.

There are some advantages and disadvantages to getting a payday loan. We thought it would be a good idea to go over them, so that if you find yourself in a position where you are considering one, you will be better prepared for what to expect.

Advantages

No Credit Checks: Since the loan is based on your employment rather than your record of paying off debts on time, and since the loans are generally so small, no credit check is necessary.

Easy Application: You can apply in person, on the phone or over the internet. There is no extensive waiting period and the information that you need to apply is very small in comparison to the information that you need to provide to get a loan from a regular bank.

Quick Money: You don’t have to wait for weeks for an approval to get a loan. Usually the money goes into your bank account within twenty four hours or less.

Security and Discretion: When you get an advance loan, nobody else has to know. Paycheck loan places don’t share your information with anyone else.

Disadvantages

Interest: If you find yourself needing a payday loan, be absolutely sure that you can pay it back on time. You absolutely should not get a payday loan if you are not sure that you can pay it back. One of the biggest problems with payday loans (in fact it’s the only real problem with payday loans) is that the interest is exorbitant, especially so if you aren’t able to pay it on time. If you get a $100 loan for two weeks, by the time that your bill comes due it will be $115. If you can’t pay it off by the time that it’s due, it rolls over, but with another $15 dollars added on. So now you are paying 30% interest on a loan. In case you are wondering, this is called a rollover, and it can go on forever.

Now, imagine that you are in a situation where you have to borrow $500? Imagine the penalties on that going up and up and up. This is definitely no way to borrow money.

Look, everybody goes through periods where they need money. But going to a payday loan office is inviting trouble.

One of the simplest and smartest ways to handle financial emergencies is to establish an emergency fund. A good rule of thumb is to have about two months worth of expenses in a regular savings or money market account that you can dip into in the event that you have a financial emergency or lose your job. Calculate the cost of your rent, your groceries, your car payment and your utilities, and then slowly put a bit of money into the account every month until you have the right amount. Once you have that amount, it’s best to forget that you have it. In fact, make it a point to not accept an ATM card from this account, or even put it in a bank that is inconvenient to get to. There is no better time to start than right now.

In the meantime, if you or a loved one in St. Louis is considering filing for bankruptcy, contact the Castle Law Office for a free legal and financial consultation today.

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