Friday, December 26, 2014

Why You Should Avoid A Payday Loan


Although credit cards are now widely accepted throughout the world, there are many times when you may find yourself in need of physical cash. Many businesses have chosen to remain cash only in order to avoid the high costs charged by credit card companies, and personal debts must still be paid with paper, as few private citizens carry a card reader around with them.

If you find yourself in one of these situations, you may be tempted to take out a payday loan in order to purchase an item or pay a friend the money you owe them. Before doing so, there are many things one should consider. Although it may seem attractive, a payday loan may not always be the best option, as the cost may end up outweighing the benefits.

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The biggest reason why one should avoid withdrawing a cash advance on a credit card is the cost of doing so. The Annual Percentage Rate for cash is much higher than it is for purchases, usually at around 20% or higher. Thus, an advance for $100 could end up costing you $20 or more if you fail to pay it off over the course of a year. People often take out advances on their cards and online payday loans with the expectation that they will be paid off immediately.

While these intentions are good, they do not always work out so, as credit cards are often swept under the rug, particularly if any unexpected financial hardships should arise. This is because people are tempted to pay only the monthly minimum payment, which, although one cannot be blamed for doing so in tough times, does ensure that you will pay the full 20% or more on your cash withdrawal.

However, even if you do decide to pay more than your minimum payment on your monthly credit card bill, this still will not guarantee that you will avoid the 20% + fees on your advance. Those who have chosen to read the fine print on their credit card agreement are already aware of the fact that credit card companies will make you pay off your lower interest rate debt first, and then apply your payments to higher interest rate debt.

Unfortunately, most of us only look at couple of sections of the agreement, like the APR's and annual fees, and neglect to take in this information. Thus, should you take out a cash advance on your credit card, you can be sure that you will be paying for it until your credit card is completely paid off, as it is the last thing you actually get to pay off.

Despite all this negativity, there are cases when an advance of this nature is simply unavoidable. You sit down to eat at a restaurant without making sure that they accept credit cards and are greeted with an apologetic rejection when you go to pay the bill. In a situation like this, you will have to make your way to the nearest ATM to take out the necessary funds, and if you only have a credit card at hand, you will be forced to withdraw a cash advance or go as far as taking out a payday loan to cover overdraft fees on your bank account.

In order to ensure that you pay the minimum amount possible for this service, pay off your debt as soon as you have the available funds to do so. This will help you to pay off the advance quickly, thereby avoiding the associated fees and putting money in your pocket.


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