The purpose behind a pay day loan is emergency use for a one off financial crisis. Those who wish to borrow must be on a regular monthly income either through employment or social security. They are asked to provide proof of income, usually in the form of pay stubs, and must have an active checking account. The lenders are not concerned with a credit check as they are looking at the future ability to have the cash advance repaid, rather than a person’s history of handling finance.
They are ideal for those with a bad credit history or no credit history who need immediate cash. There are others who have stayed away from using credit cards and just get by with their wages and a bank account. Suddenly they experience a temporary cash crisis and know that the local pay day store will allow them to sort out the problem without having to go through the much slower route of opening a credit line.
If a cash advance pay day loan is used for a one off cash crisis, to prevent a utility being turned off for instance, it can work to the advantage of the borrower, if used sensibly. If a small pay day loan is taken the fees and rate charged must be clearly stated in advance, and they may prove to be cheaper than a reconnection charge. The borrower is aware of the total amount borrowed, and the total amount to be repaid. Absolutely no more should be borrowed than the amount needed, as it is an expensive way of borrowing.
When the borrower repays this amount in full on the day it is promised then there is no problem. The cash has been advanced, albeit at a high price, but no one has been exploited as the full amount due was known in advance and repaid. After that the borrower continues to live without relying on loans, and hopefully has woken up to the need to put some savings aside for any future cash emergencies. If however the same borrower was not to repay the full amount agreed, late payment charges would apply. If the borrower then needs to take out another pay day loan immediately, problems begin which become difficult to deal with. No one should ever use a pay day loan as a regular way of dealing with their cash flow as this is the start of the debt trap.
A pay day loan can be obtained in person through a store or online. If obtained in person the borrower leaves a post dated check with the lender and returns and pays the loan and fee in cash before the check is banked. If obtained on line then an automated payment will be taken from the checking account. It may be less discreet to use an actual store but there is less chance of any misunderstanding in the terms and conditions of repayment.
Used as a one off solution to a temporary cash crisis, a pay day advance loan can be a useful tool for those wishing to remain independent of credit use. If the borrower knows that the amount borrowed can be repaid from the next pay check there is no problem. Problems only occur when an advance cash pay day loan becomes too expensive to repay, or becomes the usual way of handling finances. When used in a sensible way pay day loans serve their purpose well.