Ask most people on the street if they would ever consider taking out a payday loan, and most would reply in a negative way. The reputation of payday loan companies and their excessive interest rates speak for themselves. However, the mere fact they exist at all is because some people need them.
Clearly, they can be useful for those struggling to get the money together. If you ever have to explore borrowing from a high-interest lender, the trick is to ensure you do so in a safe manner. Here are some tips for you to make sure you don’t fall into even more financial trouble when taking out a payday loan.
What are payday loans?
Payday loans are usually short term loans of a minimal amount. Applicants will approach a lender and apply for a loan, which is then put into their account almost straight away. They are also called ‘no credit check’ loans, as the process is so quick and for anyone with poor credit ratings. However, this ease of access comes at a price. All payday loans tend to have exceptionally high-interest rates, and cost a lot compared to bank loans or other sources of financial help.
Who uses payday loans?
Payday loans are for people that are less well off – it’s as simple, and as harsh, like that. Low-interest rates are for wealthy people and those that can afford to pay everything off and still have plenty to spare after every paycheck. For those less fortunate, it’s a case of paying high-interest rates for your payday loan – and almost every other financial package.
Understanding the costs
Before you apply for a payday loan, it’s vital to understand what it is going to cost you. Almost every company out there has different interest rates and terms to deal with, so it can be a complicated process. But, one thing we know for sure is that payday loans are an incredibly expensive way of borrowing – even for a short term. Let’s say you need to borrow $100 until you get paid at the end of the month, and the interest rate is 30%.
If you don’t pay back $130 by your due date, it’s going to increase by another $39. If you fail to pay it back by the next month, that figure rises to $220 – after only 12 weeks or so! Leave it a year, and you can expect to pay interest on anything between 1000 and 6000 percent – an incredible amount of money. It’s for this reason that so many people get caught into a horrendous debt cycle.
How to use the payday loan system safely
Let’s not forget that payday loans can help people who have nowhere else to turn. And, as long as you make sure you pay everything back as soon as possible, you won’t suffer from the excessive rates. It’s still an expensive way to borrow, of course, but you can manage the impact. The trick is to find the best interest rates possible first of all. Matching services you can find here and across the web might be a good place to start.
But, you should never rely on someone else’s suggestion and always research the company before applying. Bear in mind that as soon as you apply, there is often barely any way of going back. It is never a good idea to borrow money if you don’t know when you can pay it back. The longer you leave it, the more it’s going to cost you – and payday loan companies can be ruthless in their pursual of people in debt. Always make sure you can afford to pay back the loan as soon as you get paid. It’s the only way to ensure you won’t end up paying through the nose.
And finally – be sensible
There will always be occasions in life where you need to find money. You might need to fix your car, for example, or you won’t be able to get to work to earn your wage. Payday loans provide you with an option, although it is not always the best one. Despite this, they can serve a purpose – but only if you can pay it back on time.
To avoid getting yourself into a tricky situation, it’s vital to reconsider your finances. It can be tough for those on low incomes, of course. But, if you can put a little aside every month for an emergency fund, it might help. It’s a far cheaper way to pay for your emergencies, and it will contribute to give you a robust financial buffer.