Long Term Requirements Need Not Apply

Easy to receive and a quick way to get some cash now, Payday loans can be helpful when you are in need and you have nowhere else to turn. Luckily, all you need is your most recent paystub and a check written to the lender for the amount loaned to you, plus fees and interest.

With all that included, payday or cash loans do not tend to be a good idea as a long-term financial decision, they are only preferable as a short-term solution. If it takes more than a couple of weeks to a month to pay one back, the interest on the loan will reach well into the double digits and can get much higher than that if you take any longer. So, be smart before you decide to take out a payday loan and follow these tips below.

1. Stay within your means. You will write a check or authorise a direct debit to the lender – come payment time, they will go and cash it to settle their account with you. The amount on this check will include not only the amount you took out for the loan but also any and all fees that the lender has included.

So, the logic follows that if the check equals the amount on your paycheck, the amount of money you walk away with from the lender will be less. In other words, it’s fairly straightforward; don’t borrow what you will not be able to quickly pay back.

2. You realize that you cannot pay it back this month – what do you do? If you know you do not have the money to pay your payday loan back, go talk to your lender as soon as possible. Some lenders may be understanding and set up a sort of payment plan without charging you any extra interest.

3. Rollover the loan? Think carefully about this one. Interest increases on payday loan renewals tend to exceed 100%. Ask yourself, is this the right choice for me?

4. Know your state’s cap on payday loan term limits. Due to abuses within the payday loan industry, many US states have cracked down on lenders. As a result, most states have a term limit of 30 days but some still do not always enforce it. Other states (e.g. Oregon and South Dakota) have caps on total payday loan interest that top out at 36%. In the UK, laws have recently been passed that cap daily-accrued interest at 0.8% and cap total interest at 100% (http://www.bbc.co.uk/news/business-40044871).

If you live in the Australia, it is fairly easy to educate yourself online. Learn more about the country’s legislation concerning payday loans: https://www.moneysmart.gov.au/borrowing-and-credit/payday-loans

5. Lacking in scruples. Payday loans are designed for those who are usually desperate for money and don’t have the proper credit score to turn to a bank or a credit union for a loan. A payday loan lender, on the other hand, does not care what your financial status is and is happy to lend to people who cannot pay them back immediately – it means that they will make more money in interest payments!

6. Buyer beware! Certain online lenders have been known to apply automatic loan renewals while others can require contractual agreements that prevent the borrower from excusing the debt in bankruptcy court or in a lawsuit.

7. The last resort. When you have nowhere else to turn, a payday loan is meant to infuse you with the cash you need for the moment. The temptation can be very real if you have a bill that’s due and you need money quick.

Conclusion
Know what you’re getting yourself into. While payday loans are not inherently risky if you can pay them back on time, consider that you will pay a higher interest rate than a normal loan. There are options however, should you get into trouble. There are various non-profit organizations out there that are dedicated to helping people negotiate their payday loan troubles.

Enter into your payday loan cautiously and know the trap that has been set for you if you cannot pay it back soon.