Payday Loans: What to Know and What to Avoid

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Getting a payday loan can be beneficial.  

Payday loans are short-term, unsecured loans that borrowers agree to pay back with their next paycheck. The average loan amount is about $375, and the loan typically must be repaid within two weeks.

 

Because payday loans are so short-term, they come with high interest rates – often 400% APR or more. What’s more, an estimated 80% of payday loans are rolled over into another loan, which means that borrowers incur fees each time they take out a new loan. What this means is that if the borrower continues to take out payday loans without paying off their debt, they will likely find themselves even deeper in debt with each passing cycle.  What starts out as a small debt can quickly snowball into something much worse. 

 

What many borrowers need to realize is that payday loans should be taken out only if it’s a true emergency. What this means is that you cannot use the money simply because you want to buy a new outfit or go out to dinner with your friends. What this does is put you in a dangerous cycle where you are taking out payday loans simply because there’s a lack of money in your account and not because it’s for an emergency. 

 

What borrowers also need to realize is that payday loans are not meant to be long-term solutions. What this means is that if you are taking out payday loans every month, then you are most likely in over your head financially and should seek out other forms of assistance. What you need to do is sit down with a credit counselor and figure out ways to only borrow the amount needed for emergencies, and not borrow more than you can afford. What this does is help you get back on your feet and build up a positive credit history. 

 

When you need money and there doesn’t seem to be any viable option, payday loans can appear very tempting. You may find yourself asking “Are there any positives for me when I get a payday loan?” The answer is yes, there are several. 

 

Let’s take a look at some of the positives for you when you choose to get a payday loan:

 

  • You Are Able To Get the Money Instantly 

 

One thing that sets this type of loan apart from most other types is how quickly you can get your money. When your car breaks down, or your refrigerator goes out, you need money right away. With a payday loan, you can get the cash you need almost as soon as you walk in the door. 

 

  • You Are Able To Borrow a Smaller Amount of Money 

 

Another positive is that you can borrow a smaller amount of money than you would with other types of loans. Because of this, your interest payments will be smaller, and you will be able to pay the loan off more quickly. 

 

  • No Credit Checks Are Performed 

 

Another very positive thing about this type of loan is that your credit does not need to be checked. This can be very helpful if you have had some problems with past loans and problems with your credit, or if you simply don’t want anyone checking up on you. 

 

Be sure to read the fine print before signing any loan agreement. This will help you understand the terms and conditions of the loan, as well as how to pay it back. 

 

Finally, be sure that you can afford to pay back the loan when it comes due. Failing to do so can result in incredibly high interest rates and fees. 

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