Should I use a Payday Loan?

A payday loan is a short-term loan using an item such as your paycheck as collateral. Companies such as MoneyTree make them all the time. But how much interest do you have to pay for that loan? Aye, there’s the rub….

Okay, sometimes life throws you a curve-ball and you need to get some extra cash, for whatever reason.  Where can you get the money if you’re tapped out?  You could try your bank if you have enough collateral, your credit card if you want to pay those loan-shark rates, or a money center.  You know, those sometimes seedy-looking check cashing companies.

So you need a payday loan and you decide to go to one of “those” places.  What can you expect?  Actually, they’re not to be feared!  Some friendly people work there, and they will answer all the questions that you have.  Remember, these places should be used only when necessary, because they charge prohibit interest rates.  Example:  For every $100 borrowed, MoneyTree charges $22.  So assuming you have 30 days before your next paycheck, you will pay $22 on that one hundred bucks.  When your next paycheck comes in, you have to pay back $122.  Period.  But, maybe it was worth it to you if you’re in an emergency situation.

How do they determine how much you can borrow?  Basically, it works on how much your next paycheck is.  They will determine an amount based upon a percentage of that paycheck.  Roughly, if you receive only $1000 per month, then you can borrow around $100.  Whatever the mathematical formula is, it obviously works for them as these companies do a thriving business.

The good thing about these places is they don’t care about your credit rating.  You could have the worst credit in the world, and you can still get a loan from a payday center.  That’s because your paycheck is the collateral, not your past credit history.  So, for people who’ve had a rocky past with credit, and there are quite a few of them today, this is the place to go unless you have a rich uncle who really loves you!

Most of these places have other services as well, such as check cashing, money orders, Western Union money wire transfer, gift cards etc.  So it’s kind of one-stop shopping in the cash department.  But again, be careful of the fees they charge, and use them only in emergency situations.  The cost is just too prohibitive to be using them monthly!

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