Students often ask me about whether or not it is a wise move to take out a payday loan to pay for school, and I tell them every time that it is almost never a good idea to get a payday loan while you are still in school.
This is because of the exorbitant interest rates, and finance charges that most payday loan products will come with. Most students simply don’t comprehend that they will most likely end up paying close to, or more than the actual loan amount they received in finance charges when they take out a payday loan.
When they cannot pay these ridiculous finance charges it becomes a nightmare situation in which the student often gets overwhelmed, and ends up going into default for a small cash loan that wasn’t more than a thousand dollars. This is not something that college students should have to worry about while they’re going to school, and this is why it almost never a good idea to consider taking out a payday loan to pay for college.
What Are Payday Loans?
Payday loans are ultimately “cash” loans that are made in relatively low amounts—typically between one hundred, and fifteen hundred dollars, to people who are in desperate need of some additional money before their next paycheck.
- They come with extraordinarily high interest rates and fees, that can sometimes be over seven hundred percent per year.
Yes, that figure is correct, although many payday loan companies are now simply charging their borrowers a flat fee that is based upon a percentage of the loan they take out.
The amount you borrow with a payday loan most often has to be paid back within about a two, to four week period after you have received the proceeds of your loan. If you are unable to pay the amount you owe back within this timeframe many payday loan lenders have no problem extending out your loan term in order to make more money off of you.
Getting a payday loan is very easy to do, and that is partly why I urge students to not even think about considering this option, as sometimes the possibility of getting “fast cash” is simply too strong to resist.
You typically only need a checking account, a small monthly income, and perhaps no defaults in the past on other sorts of payday loan products in order to get approved for a payday loan. Payday loan lenders will seldom take into consideration your credit situation, and many won’t even run a credit check.
Recommendation for Students
Don’t ever consider taking out a payday loan to finance your college education. It is a very short-sited strategy that will most likely leave you worse off when all is said and done.
The few hundred dollars you may be able to receive via a cash advance isn’t worth the risk of destroying your credit for years to come, and it isn’t worth the amount of money the payday loan lender is going to charge you over the long-run.
Payday Loans and Books
Students always ask me if they should take out a payday loan to pay for their books. I think this might be because the amount of capital you can gain access to via a payday loan is in line with the amount you’ll have to spend on books for a given semester.
My answer stays consistent on this one—and that means that I don’t recommend getting a payday loan to pay for your books for any particular semester. If you plan ahead with the types of financial aid that you should be exploring—grants, scholarships, student loans, etc., you should be able to have enough money at the start of each semester to put towards your book expenses.
Final Words
By planning out how you are going to come up with the necessary money to pay for school you will avoid ever having to consider getting a payday loan. Remember that private student loans should be applied for last, and after you have exhausted your other financial aid options.
If you need additional money before the start of a semester a private education loan should be the correct way to go, and then it is simply a matter of getting approved. Private student loans should be your last resort option, not cash advance loans, so focus on getting a cosigner if you need additional money for school, and never be lured into applying for a payday loan.
