Payday loans and other similar personal cash advance loans are becoming a main stay for many people who find themselves in need of quick cash.
Why? It has to do with the combination of a poor economy, higher costs just to live (pay rent, mortgage, utilities, gas, etc) and the fact that banks and credit cards - who use to be the go to source for personal loans - are just not lending.
In this economy, where the focus right now is about the unemployed, is really about the under-employed. Those that have been laid-off from good paying jobs only to be hired in positions that pay minimum wage. Those recent college graduates who cannot find employment on scale with their education and skills. Or, those that should have retired by now but are being forced to work longer in jobs that pay less then they are use to.
Costs just to live are rising faster than our economy or salaries can keep up with. In fact, according to USInflationCalculator.com, 2011 saw inflation (on average for the entire year) increase by 3.2% - the largest increase since the latest recession began and the fourth largest increase in over a decade. Further, 2012 is shaping up be another big year for price increases. Through August of 2012, inflation increases are averaging some 2.16% and is expected to increase during the last quarter of the year.
Now, 3.2% and 2.16% might not seem like a lot but given the fact that average salaries have declined or with people being forced to take minimum wage jobs, they just don't have the income to cover their basic living expenses let alone any type of cost (inflation) increase. Lastly, the numbers above do not take the price of gas into their equation. But, gas prices have doubled over the last 4 years and are one of the single most important costs that most working individuals have today.
Think about it this way. The U.S. Census estimates that the average person commutes about 16 miles one way to work or 32 miles per work day round trip (know that this number is slowly increasing as more people have to go further out to find work).
If the average miles per gallon is 22 MPG (according to TrueCar) and the average price of a gallon of gas is $3.83 (9/22/12 - per the Washington Post) that means that the average person would spend about $5.57 per day in gas alone or $120.70 per month.
Note: this does not take into account any idle time at stop signs, traffic lights or in traffic in general. While the average person may drive 16 miles one way to work, their commute time is around 26 minutes which does further increase fuel consumption.
Given a minimum wage job at $7.25 per hour, if you compare fuel costs to after tax income, then gas costs equates to approximately 11% of a person's take home income.
Commute longer and your costs only go up.
Lastly, banks want your deposits (your meager paycheck being directly deposited in their bank vaults) and they want you to have or use tons of their products so that they can fee you for them but they won't give you a personal loan. They claim your credit is too bad. But, if it isn't, then they claim your income is too low. But, if that isn't as well, then they come up with some other stupid, unjustifiable reason. End, result, you cannot get a personal loan from a bank to save your life.
But, what happens when life crops up and you have an immediate financial emergency?
Medical bills, higher then expected utility bills or car repairs. What about bank fees when a check bounces or drafts your overdraft protection. Those fees can cause more harm (cost more) then the bills you are trying to pay in the first place.
If you can't go to your bank for help, where can you turn?
Payday loans and similar personal cash advance loans are stepping in to fill the gap that banks are leaving by not lending.
Payday loans are becoming increasingly popular because:
1) They are easy to easy to get - all you need is a minimum income (usually $800 per month or more), be over 18 years of age and need quick cash.
2) They are fast to get. You can have, depending on the time of day you apply, the money deposited directly into your account in a matter of hours.
3) These lenders want to work with you and not just try to find ways to decline your request. They understand your needs and situation and have products designed just for you.
4) They are less expensive then interest and fees on medical bills, missed payments and having your utilities turned off or missing work due to not having transportation or for most emergency cash needs.
So, if you are in need of a quick cash loan, here are a few tips to ensure that the process goes smoothly and you get right back on your financial feet as soon as possible:
1) Make sure that the alternative (the thing or problem that you need the payday loan for) is not more expensive than a payday loan. Example: Let's say that due to a simple math error on the part of your employer, you did not get paid your full wage and that they will make it up to you in a few days. But, you already have 4 bills that are due to draft your checking account today and, when those drafts bounce, your bank will fee you for each item - not to mention the company you are trying to pay will also charge you returned draft fees.
Let's say that your bank only charges $5 per draft that bounces and the companies you are paying (car loan, utilizes, rent, cell phone) only charge $5 per item. Then, your total cost of doing nothing and waiting to pay those bills when your employer finally gets your check right is $40. Now, if the payday loan you are seeking costs $45 - then you are better off not taking the loan and waiting.
But, banks charge way more than $5 per item. Plus, those companies you are trying to pay charge way more than $5 for returned items. In fact, when all is said and done, you could be facing hundreds of dollars in fees and penalties. But, if the payday loan fees are less - you are much better off taking the loan. Not only do you avoid those bank and company fees but you keep your accounts in good standing with them (which could be priceless down the road).
2) Understand and be able to meet the terms of the loan. If your cash advance loan requires that you repay the loan and fee with your next paycheck - then make sure that you can and will do so. Extending a payday loan or not paying as agreed can be just as harmful as the situation you were trying to avoid in the first place. All it takes is a little cut back and discipline for a week or two and then you can get back to your normal life.
3) Don't take more money then you need. While the lender might state that you can qualify for more - only take what you need to overcome your current situation. Not only will most lenders charge bigger fees for bigger loan amounts, taking more than you need puts a larger strain on your next paycheck.
4) Interest rates. Most lenders will tell you right upfront what you will be charged for the loan. However, it pays to make sure you read everything over and completely understand your charges. This will allow you to know what you are getting into and not be surprised later on. Plus, it can help you make the decision to take the loan or not. Know that it is OK to walk way even after they approve your loan request.
Payday loans and similar cash advance personal loans are becoming more of the main stay in our economy - based on necessity more then anything else.
If you are like nearly everyone on this planet, there will be a time that you have an immediate financial need and no where to turn but to a payday loan. Then, make sure you follow these simple tips to make sure it all goes the way it should and as smoothly as possible.
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