According to financial experts, payday loans should be taken after a lot of thinking. If you are not sure that you can pay the loan back in full on time, you should not think about applying for this type of loan. But if you have decided to borrow, given below is what you should know.
How payday loans work
Actually, payday loans are issued for short-term and the money is deposited in your bank account. Usually, you don’t need to pay back the loan unless it’s the payday. However, some lenders let the borrowers decide on the repayment method.
On the payday, the lender will deduct the principal plus interest from your bank account. The deduction will take place even if you still have to pay your bills.
Most of the payday lenders ask the borrowers to set a recurring payment. This allows them to deduct the recurring payment from your bank account through your own debit card. So, if your bank account has no credits, you may end up crossing your overdraft limit. As a result, you will have to bear heavy bank charges.
Avoiding the traps
In a scenario, if you fail to repay a loan, the lender may give you another option: a rollover or a deferral, which is simply another loan. In this situation, you may find it a great solution, but it may lead to further problems. The reason is that you will have to pay back heavier amounts because of the higher rate of interest. So, make sure you don’t fall for it unless you absolutely have to. It’s better that you look for a better alternative.
The Bad Options
Typically, payday lenders tend to advertise their business for all types of cash flow crises one can imagine. But you should not go for a payday loan if you have to pay off other types of loans, or if you want this loan to buy the stuff you don’t need.
You should go for this type of loan if you have an emergency or you have to meet a very important necessity. For instance, if you are some of your family members fall sick and need immediate medical attention, you can consider this option.
If you’re going to apply for a payday loan
So, after you have considered all your options and you have made up your mind to apply for a payday loan, you should think about how you are going to pay it back. Are you going to have some surplus money each month to make payments? Are you going to get some extra income from another source? If you have side business that you know will earn you enough income to make the monthly payments, you are good to go. But if you don’t have any other source of income, you should think twice before applying for a payday loan. You don’t want trouble, after all.
So, these are the questions you should know the answer to before taking this important decision. You should consider all your options before going this route. For instance, you can ask your friend or a relative for money. They may give you some money to meet your needs. One advantage of borrowing from your friend is that your property won’t be taken away by the bank or the lender in case you failed to repay on time. But in case of a payday loan, you may have to face worse consequences.
Hopefully, you will consider these tips prior to applying for a payday loan. After all, you don’t want to get into a bigger problem by becoming a defaulter.