Money is never enough. No matter how much you have, it's always less than what you need. We all need money urgently at times - to make repairs, pay medical bills or home rents, invest in a business, and so on. While money goes fast, you have to wait until payday to get more money. If you need fast cash but your paycheck will only come after a few weeks, then consider a payday loan. But understand the pros and cons before you use this option.
Why Payday Loans
Call it paycheck loan, payday advance, cash advance, or whatever you like, a payday loan is simply a short-term loan that you can repay by the time you receive your next paycheck. People prefer these loans for the following reasons:
o Quick cash - most lenders provide cash within 24 hours.
o No check of credit history or limit - Lenders may verify your employment status, bank statement, and few other factors.
o Hassle-free - you get money with no questions asked. Nowadays, online credit companies provide cash without needing you to travel.
What's the Catch?
Payday loans are convenient ways to get cash when you want but if you don't use this option wisely, it could simply be the cause of your financial ruin. Here are some of the worst mistakes people make:
Mistake 1: Not knowing whether you can repay
The rates of interest on these loans are generally quite high. For example, on a two-week loan of $200, you may have to pay an interest of as high as $50. If you can't repay it after two weeks, you will have to pay the interest not only on $200 but also on the $50 you borrowed. This can accumulate into a large sum after a few months. Take a loan only when you are sure that you are able to repay it with the interest.
Mistake 2: Taking a payday loan to repay another loan.
AVOID taking a loan to repay another loan. Often, people are unable to pay the amount at the end of the loan period. To pay off one lender, some take a loan from another company. This leads to a dangerous debt trap, where the borrower is simply unable to even pay the interest! This is the most common cause of bankruptcy.
Mistake 3: Not researching
Many borrowers are not aware of laws, interest rates, etc. related to payday loans. For example, some state laws state that the rate of interest cannot exceed 60 percent for any type of loan. Moreover, people do not compare different lenders for their interest rates. The result is that they do not get the best option, which may lead to higher payments or delayed processing. The important thing to do is research these loans thoroughly to understand the procedure, pros, and cons. Explore alternatives such as auto title loans and pawn for cash loans. Speak to your friends, relatives, etc for references.
To conclude, payday loans are a good alternative when you want cash urgently and you know that you can repay the full amount after getting your salary.