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Payday Loan Survival Guide

Updated on August 9, 2008

What is a Payday Loan?

Simply put, a payday loan is a high interest short term loan that is marketed as a cash advance against your paycheck.

Who can qualify for a Payday Loan?

Basically, anyone who has a job and a checking account and has their paycheck direct-deposited into their checking account can qualify for a payday loan. Some payday loan companies will also extend loans to people who receive Social Security, SSI, welfare payments or pension payments as long as they have a checking account and their checks are direct-deposited into their checking account.

How do Payday Loans work?

You go to a payday loan store, show them your two most recent paycheck stubs, your most recent bank statement and a piece of photo identification. (Some payday loan companies will also request to see one or two pieces of mail to verify your address.)

You will fill out a short application that includes your weekly, monthly or biweekly salary, personal contact information, employment information and between two and five personal references.

A payday loan store representative will make copies of your documents and identification, enter your information in their computer system and, based on your income, tell you how much money you are qualified to borrow.

If you choose to take out a payday loan, you will sign some forms detailing the loan amount, interest rate, your obligations and the company's privacy policy. You may also be given some information from your state's financial regulation department about your rights as a payday loan borrower. In addition, you will be required to sign a wage assignment that gives the payday loan company the right to debit your checking account or garnish your wages if you fail to repay the payday loan.

What Happens if I Don't Repay My Payday Loan?

Very bad things will happen if you fail to repay your payday loan.

The payday loan company will call you repeatedly at home and at work in an effort to collect the money you owe them. The payday loan company will send you collection letters. The payday loan company will report payment delinquencies or defaults to credit bureaus. If these collection activities don't get you to pay, they will refer your case to a collection agency or attorney, they will garnish your wages and they may even file a lawsuit against you.

If they sue you and win, you will have to pay court costs and all sorts of other charges on top of the principal and interest you already owe the payday loan company. Take my advice: do not default on your payday loan!

Pros and Cons of Payday Loans

Pros of Getting A Payday Loan

1. You get money within minutes with no credit check.

2. You don't have to ask friends or relatives to borrow money.

3. There is usually no penalty for paying off a payday loan early.

Cons of Getting A Payday Loan

1. You pay extremely high interest rates (in the triple digit range) when you get a payday loan.

2. The payday loan company will call your job to verify employment and will have your bank account information.

3. If you are late or miss a payment on a payday loan, you will face dire consequences (collections, wage garnishments, ruined credit, lawsuits, judgements).

Payday Loan Survival Tips

If you have to get a payday loan, follow these tips and guidelines to avoid getting burned:

1. Don't get a payday loan unless it is an absolute emergency and you have no other options available to you.

2. Get a payday loan as close to your actual payday as possible.

3. Make whatever sacrifices you need to in order to pay off your payday loan in full with the first paycheck you receive after obtaining the loan.

4. Do not get more than one payday loan at a time under any circumstances.

5. Shop around for different payday loan companies to see which ones have the most favorable terms and interest rates.

6. If you run into a situation where you will not be able to repay a payday loan in full within one payday of receiving it, try to time the loan so that you will receive it shortly before you receive a tax refund, 401k distribution, student loan refund or other windfall you can use to pay off the payday loan in full.

7. Avoid becoming a repeat or regular payday loan customer. Payday loans are a financial resource of last resort that are only to be used in an absolute emergency when you have no other financial alternatives available to you. Do not become a habitual payday loan borrower.


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      Mohit Mishra 9 years ago

      good guidance.