How Payday Loans Become a Vicious Cycle

Payday loans can be deceptive. You are forced to turn over a post-dated check for a loan and in addition, there is a possibility that you will be harassed and threatened because of some collection practices. The high rates of payday loans make it difficult for so many borrowers to repay the loan simply because they are already in a financial crisis.

When we are short of cash, Payday Loans or Check Advance Loans may seem like an easy way out of a temporary cash shortage but for many people, this can be the beginning of a vicious and expensive cycle where you will find difficulty getting out of in the long run.

An example of this situation would be about Carlie. Carlie was short of money to pay for her monthly bill and so she went to a payday lender and borrowed money to make up for the shortage and she was charged $50 for up to 15 days or 2 weeks. She needed to repay her loan when she receives her next paycheck in the next 15 days. When she got her check, she realized she didn’t have enough money to pay off the amount she borrowed with the $50 interest fee, so she paid the additional $50 to the lender and rolled her payday loan for another 2 weeks.This cycle went on for about 6 months and in the end, she had paid a total of $600 in fees and still owed the principal amount of $200. She had already paid 3 times more than what she borrowed and that puts her in a much deeper financial debt than she was in before she made the first loan.

The interest rates on a personal loan from a bank tend to be 10 times lower than even the lowest rate payday loans. Even a high-interest rate credit card has a much lower rate than a payday loan. The interest rates of payday loans rate from a whopping 300%  which may go up to to 1,000%.

A payday loan is requested for a short period of time, usually one to two weeks. You will be required to provide proof of employment and some identification and to secure the loan, you will also be required to write a post-dated check for the principal and interest fees of the loan.  A $100 loan can cost you $15 of interest for 2 weeks. This may seem reasonable enough  for an emergency situation,however, did you know that the annual interest rate on that loan can amount to 360%? If it becomes a vicious cycle, you will end up more badly in debt than you were in when you first borrowed money from the payday lender.

If the money you need is not for an extreme emergency, you may want to try these other alternatives for less expensive loans:

• Ask your employer for a pay or cash advance.
• Consider asking your friends and family for a loan first.
• Consider a credit card advance.
• Contact a local credit union for a small loan.
• Request additional time to pay the bill from your creditors.
• Try credit counseling.
• Prevent financial emergencies.

To prevent financial emergencies, take time to look at your income and expenses. Write it all down. Try to save a little money each time you get your paycheck. No matter how little, this still will add up and it’s still better to have some when you need it.

Getting A Personal Loan to Fund a Business? Here Are Some Tips.

Getting a personal loan to for a business can be difficult especially if the business you want to enter is in a high-failure rate category such as a restaurant. If you don’t have your own capital or are looking to add more investment for your business, the best place to look for money or a loan is with banks. 

First of all, you need to create a business plan. The feasibility of  a business plan is highly important for the banks to determine how you will be able to pay them and how much they should loan you. The research and information uncovered in the feasibility study will support the detailed planning and reduce the verification time that the banks will do for you. This exactly defiines what a business project is and issues needed to assess its likelihood of succeeding.

Other than the business plan, you also have to consider these documents for your initial visit to the bank.

Personal Financial Statement

A company’s or a person’s financial statement is the most important business document that the bank will require. This is a snapshot of a person’s financial state. It shows whether you are capable of paying back any loan or if you could support a business with your own resources other than what you are trying to loan from the bank.

If you already have a business running and just need an additional investment, this is higly important because it shows the flow of money in and out of your company. It shows how wealthy or indebted you are to the bank.

Credit Report

The bank does not need to require a credit report from you because they could obtain it on their own once credit investigation has begun. It is incredibly important that you familiarize yourself with the information on the report. If you have a low score, then you should be prepared to give the credit reporting company a call if you need to dispute something otherwise be ready to explain to the bank and give detailed explanation for any discrepancies.

Tax Returns

This shows that you have a documented income and that you are a stable individual who can stay in a job for a long time. It usually gives the banks an impression that you can also be responsible in paying for the bank loan. Banks usually require 3 years of personal tax returns.

Any Criminal Records

Banks also look into your character before they agree to loan out money for your business. They usually take a look at your residence and how long you’ve stayed in a place. They also look at your employment history. If you did commit a crime in the past, you must be ready to explain this as well to the bank.

If you have business partners, then they should also provide copies of these documents and be ready as well for the bank interview and make sure all your documents are ready when you go to the bank.

Can You Still Get A Personal Loan with Bad Credit Rating?

It can be challenging to get approved if you have a poor credit rating and no collateral. But don’t feel helpless. There are unsecured loans available for people who currently have a bad credit rating. The key is to know where to apply and get them.

Here are some tips on how you can get a loan even if you have a bad credit rating:

It is always wise to use the internet to search for companies that offer Unsecured Loans for people with bad credit. Ideally, you would spend much time comparing what these companies offer and which one works best for you. Look at the interest rates and terms and find out where you can get the best deals. Search engines such as Google and Yahoo can help you find these. You will also need to avoid scams as there are many out there in the internet. The more time you invest in researching loans, the better prospect of you getting the best rate.

Because you have a poor credit rating, you are viewed as a High-Risk borrower by lenders. Even if you qualify for a loan, you still will be given a higher interest rate than borrowers who have good to excellent credit rating. Keep in mind that even if you are considered a financial risk to most lenders, you should not pay rip-off interest rates. The reason for getting a loan is to help you recover financially and not dig you deeper into debt.

Even though lenders are offering Unsecured Loans for people with bad credit rating, this does not mean you will automatically qualify. Application entails that you provide extensive documentation so be sure to have all of that before making the loan.

Ask yourself: Do you really need the loan? Can you put off purchasing this item that you have your eye on at a much later date, possibly when your finances are in better shape? Is it not possible to borrow from another family member or a friend instead where you will not have to pay any interest? Is the loan you are applying for affordable and if you get approved, could you squeeze the monthly payment into your budget?

You have to make a lot of careful consideration especially when you have a bad credit rating. It is usually unwise to take out another loan when you have a bunch of others that you are unable to pay. If it is for a family or health emergency, then it would be a good option. Otherwise, if you’re just planning to buy new furniture or have a vacation, this would not be such a good idea because you can always put that off when your finances are in better shape.