When You Avoid Taking a Pay Day Loan

You may have heard of "pay day loans". These are loans that just about anyone with a job and a bank account can get.
Because pay day loan companies do not ask questions and many do not do credit checks many are tempted to turn to pay day loans when they fall short of cash or encounter an emergency situation.. I am not saying noone should ever take a pay day loan. I am saying there are certain situations where ANY other option is better than a pay day loan.

Here is a pay day loan example that describes just the type of situation you would want to avoid. Jenny's car breaks down and the bill is going to be five hundred dollars. When she calls about a pay day loan she decides to borrow more than the amount due on her car so that she will have an emergency fund in case she has money troubles in the future. She is a real estate agent, needs her car to go to work and earn money and is sure she will make a sale soon. She borrows $1,500.

Initially Jenny is happy about her decision. She is able to pay the mechanic and get back to work. Then the deal that Jenny was sure would go through falls apart. The pay day company is taking $250 dolars from her account each month but with an interest rate of over 95%, Jenny realizes thst she will have to pay this monthly fee for ten years to satisfy the debt! Not only that, the "extra" she borrowed is sitting in her savings account earning 2% interest but all the while she is paying 95% interest on it. The first things he should do is send back that thousand dollars, next she should borrow five hundred from wherever she can and pay the loan off. Till she does she will keep paying $250 a month..but her capital debt will be decreasing by such a small amount that she wil pay that for a full decade before she no longer owes, even though in ten months she will have given them $2,500 , a full thousand dollars more than she borrowed!. Until any "Jenny" can find a way to come up with that lump sum, here of $1,500, she will continue to pay ,basically, just interest charges.