A Must Read Guide To Understanding Payday Loans
There are many things to consider before taking out any type of loan, but payday loans are arguably one of the most notoriously difficult loans to agree on. They can be an expensive way to borrow and could end up costing you more than you expected if you don’t take any precautions. However, they are a good option for some people and can help in times of financial struggle, so we have put together this guide to help you understand payday loans and decide whether they are right for you.
What is a payday loan?
A payday loan is a short term loan that has been designed to help you cover immediate cash until you receive your next paycheck. Usually, these loans offer a small mount of money with high APRs and payments are typically due within two weeks of receiving cash or on your next payday. This means that they are suited to individuals in emergency financial situations and should not be used by borrowers who are unsure if their paycheck will cover the cost.
How do payday loans work?
Payday loans are available online or via a physical branch with a payday lender. The money is paid directly into your bank account and you are required to repay in full with interest and any extra charges in one lump sum. Some lenders may allow you to choose a repayment period, but typically, you need to wait until payday to repay the loan in full to avoid early repayment charges.
Most payday loans come with a finance charge, which is usually calculated based on the amount you want to borrow. Because payday loans have such short repayment terms, these costs create a steep APR, which means that you may end up paying more in your repayment than you bargained for.
What are the advantages and disadvantages of payday loans?
While payday loans attract a lot of negative press, if they are used correctly and for the right reasons, they can be beneficial. If you only require money for a short amount of time, they can be one of the cheaper options available to you, proving to be more affordable than bank charges for returned direct debits and overdrafts. Payday loans are also very quick and easy to obtain, which is great if you have a financial emergency.
While there are a few advantages to payday loans, there are also a number of disadvantages to consider, including the high APRs, the hefty late payment fees and the rising amount of interest that is added on daily. All of these things combined mean that you may end up paying a lot more than you had originally expected, leaving you in a worse financial position than before. If you feel as though you would struggle to repay the loan back, it may be better to consider other options. If you’re in a bind with a lot of debt until payday, debt consolidation can be helpful for you.
You can search for the debt consolidation company on the internet.
Are there any alternatives to payday loans?
There are several alternatives to consider before securing a payday loan, including:
- Asking friends or family for help – personal borrowing from a trusted friend or family member can be ideal. This would save an paying high interest rates and potentially offer flexibility around repaying.
- Using a local credit union – credit unions provide straightforward and affordable financial products, which are likely to be a lot cheaper than payday loans.
- Selling unwanted items – turn your trash into another man’s treasure by selling your unwanted items online.
- Reducing your spending – make a budget plan and identify which areas you can cut back in.
If you are struggling with your financial situation and have been considering a payday loan, use a debt or money advice service first to gain more support and help. That way, you’ll be in a much better position to make a decision.