Earlier this month, I wrote a blog post about how our family took advantage of using a payday loan to help us get out of a jam. This of course is referring to the sudden car repairs I had to pay for and was unsure where I would find the money.
It really did help us out a great deal for the time being, however there were many important factors that we needed to consider before applying for a payday loan. While it definitely was a great source of financial support for us in that instance – I had full awareness that it was not the answer to all financial dilemmas.
In the event you are considering a payday loan to help with a particular financial situation, there are some red flags associates with payday loans that you should be caution of before you pursue this kind of commitment.
As I said, in my earlier ‘payday loan’ post – these loans are only for the short term. In today’s post, I really wanted to expand on this topic more thoroughly as well as address some other implications you will want to hear.
The upside . . .
Generally speaking, most payday loans as you may already know, range between $200 and $1,500 and take such little time and effort to secure. With this simple process, the loan amount can be deposited straight to your account within a few short days time and at that point you can allocate the money in whichever direction you choose.
As we needed to funds to have our vehicle promptly fixed, you may have other plans for the money. Maybe you need to have some access to some extra money to buy necessities such as groceries or even to pay some immediate bills – the thing about payday loans is there is no purchase (as long as it falls within the amount limit), that is off the table.
However, it is important to consider the reasons for the loan and if you require the funds for something that you can’t wait to save for on your own. While it may seem appealing to use to money to buy whatever you feel like – remembering that this type of loan is recommended only for ‘emergency’ purchases or necessities is also equally important.
While this certainly sounds like an ideal scenario, you do need to keep in mind that these loans are designed only to tie you over until you receive your next paycheck and the duration of the loan typically falls within a period of 14 – 30 days. At this point you should be prepared to need to pay it all back.
The downside . . .
So what happens when say, you can’t pay back the loan on time? This is a very important question. First and foremost, the rate of interest attached to these loans can be quite high and is often the amount you pay up front to take out the loan. So, while this may not actually be so astronomical in the beginning, especially if you can pay back the loan before the deadline – it however will become a much larger amount in the event you are unable to pay it back and you need to have an extension. Failure to pay these back could result in having your credit situation suffer even further.
Unlike other loans that will see a fixed fee being carried over to the next pay period, with a payday loan that fee may actually go up. When your next payday arrives and you are ready to pay back the money, you will actually be forking out twice as much to pay back the loan. This is a vicious cycle that many borrowers get into and the fees keep increasing, making it even more difficult to pay back your loan and in many cases, also falling further in debt.
To sum up, if you are unsure whether or not you can pay back the loan on time, maybe going with another option, for example check advances, is the safer bet (again please examine the details of these agreements as well, before proceeding).
If you decide a payday loan is for you, another piece of advice I have come across is that you can choose to ‘shop’ around at different payday loan lenders. Interest rates will vary from firm to firm and certain lenders may offer their own personal rewards and promotions that will benefit you in different ways. Sometimes taking a payday loan can be a sign that you are in financial trouble. Even if a payday loan is the only option available to you, you can still aim to get the best deal possible and save money wherever you can.
Overall, while our payday loan experience was a positive one, in large part to the time we took to understand all of the implications associated with this loan and if it was the right choice for us in that situation. After that, I recommend that before you move forward with a payday loan, you make sure you learn all there is to know about them and if they are right for your financial situation. Knowing when they are right for you and when you should shy away from a payday loan is a significant consideration for financial well-being.