Breaking down “Payday Loan”
Payday Loan or most commonly known as Cash Advance or Check Advance Loans.
It’s a type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash. The lender holds onto the check and cashes it on the agreed upon date, usually the borrower’s next payday.
How does it work?
A borrower writes a personal check payable to the lender for the amount the person wants to borrow, plus the fee they must pay for borrowing. The company gives the borrower the amount of the check less the fee, and agrees to hold the check until the loan is due, usually the borrower’s next payday. Or, with the borrower’s permission, the company deposits the amount borrowed — less the fee — into the borrower’s checking account electronically. The loan amount is due to be debited the next payday. The fees on these loans can be a percentage of the face value of the check — or they can be based on increments of money borrowed: say, a fee for every PHP50 or PHP100 borrowed. The borrower is charged new fees each time the same loan is extended or “rolled over.” Sounds familiar?
There tough times in our lives that we might even consider on engaging on this type of loan. But before you decide to take out a payday loan, consider some alternatives first. We must always be wiser with our finances, because we face the consequences in the end.
1. Make a realistic budget
PLAN, plan and plan. This must include your daily and monthly expenses. You must avoid unnecessary purchases. Perhaps planning to have some coffee? Don’t. Small costs like this add up. Instead, try to build some savings. Modest as it may seems, a savings plan can help you in times of emergencies.
2. Contact your creditors
The moment you you have problems paying your loan servicer, let them know and don’t hesitate on asking for a realistic time. These creditors will be willing to work with consumers who they believe are acting in good faith. They may offer an extensions on your payments, just make sure to find out the charges for it.
3. Limit the amount
Borrow only as much as you can afford to pay with your next paycheck. And must have enough to make it to the next payday.