What To Consider Before Applying for a Payday Loan
A payday loan seems to be the best and fast way to get the cash you need, but there are a lot of risk associated with these types of loan that cannot be ignored. Your intention might be to borrow a small amount of cash and then return it by the due date. Unfortunately, it does not work out that way. There are many kinds of high fees associated with this type of loan and if by any chance you fail to repay back on time, you can become trapped in the vicious cycle of debt and it could take you months to get out of it. Lenders offering payday loans are predators searching for people in desperate need for cash. Therefore, before you apply for these loans there are a few things that you need to consider and ask some key questions to ensure you have all the facts right.
If you are struggling to pay your monthly bills despite having a fixed monthly income then a payday loan will only make your current situation worse. So instead of applying for this loan, consult a credit counselor who can help you with debt management and help you to get on a budget. If you still want to apply for a payday loan then you should first ask yourself if you really need to apply for it. It is important because of the hidden charges and high interest fees. A first it may seem like you have found the best solution for your financial issues. But in reality, a payday loan can cost you twice the amount what you think.
Generally, a payday loan is a short-term loan. Lenders charge high fees which makes this loan a very expensive way to borrow money. You can borrow up to $1,000 and pay back from your next paycheque. If you fail to pay it back on time, you will face more fees and interest charges. This will increase your debt and eventually you will get into serious financial trouble. Besides, the loan amount will continue to accumulate interest. In addition, the lender has the right to sell the loan to a collection agency and it will appear on your credit report or take legal action against you to recover the outstanding amount.
Payday loans are designed to cover small cash shortfall until you receive your next pay. They should never be used for ongoing costs such as rent, groceries or utility bills. If you consider taking out a payday loan you will need to meet a few preconditions. You should have a regular income, a bank account and a permanent address. When the loan is due, lender will either get the total amount including fee withdrawn directly from your bank account or you may provide a post-dated cheque. Upon approval against a payday loan, you will get the cash deposited directly into your bank account.
Once approved, the lender will ask you to sign an agreement that will have complete information about how much the loan costs, including interest, fees, APR and the due date. Make sure you go through the document carefully before signing it. Depending on the province or territory, find out the payday lending rules. Compared to traditional loans, payday loans are very expensive. You pay high fees, you are charged higher interest rate and you may have to pay a fee if your pre-authorized debit or cheque doesn't get through. All these high cost can make it difficult for you to pay back and increase your financial stress instead.
So, before you choose to apply for a payday loan, be sure that you can afford to pay it back within two weeks. If you are not sure if you will be able to repay, you can consider other alternative options. You can also ask for help from your friends.