Must-know advice about payday loans and cash advances
A payday loan can help someone through a one-time rough patch. But the amount that must be paid back can multiple fast, with interest rates so high it is impossible to keep up. With the current economy, more and more people are considering using these types of loans, but is it the right choice?
“If you are considering a payday loan or credit loan, do some research,” says Daniel Wesley at creditloan.com, a comprehensive Web site on personal finance. “When used wisely, these types of loans can be a valuable resource.”
How do payday loans work? Wesley explains the application process is very simple and you usually only need proof of employment and a checking account. You then determine the amount you need and write a post-dated check plus lender fees. The lender then gives you that amount and withdraws the amount from your bank account on the next day you get paid.
Sounds simple, but too often these types of loans become an ongoing problem for the borrower. Here is what you need to know to make the right decision about getting a payday loan:
1. Never borrow more than you need
These loans require no collateral, which means that the risk to the lender is very high. This often leads to high interest rates that increase the profit made by the lender. The bottom line is, don’t borrow more than you are able to pay back or you’ll be hit with huge fees. You don’t want to pay double or triple the amount you originally borrowed.
2. Do your research and find a reputable company
Just as you would when you take out an auto or home loan, check around to find the best interest rate for payday loans. Different companies offer different rates and terms. Be aware of hidden fees and penalties and always work with an established, reliable company. When borrowing over the Internet, be especially aware of scam artists.
3. Make a budget for the future
Sometimes emergencies come up and resources like payday loans can help families survive until the next paycheck. But if you find you repeatedly need a cash advance to get through the month, it’s time to set a budget for yourself and stick to it. Compare your spending to your monthly income and cut any unnecessary items to help ensure you don’t get caught owing more money than you make.
4. Deal with debt in the long term
If you continue to have problems with debt, it’s best to develop a plan for paying back what you owe. Contact a credit counseling service to see what options are available. Some will have a cost, so look for a service that is reasonable and will work with you to create a manageable plan.
“Payday loans are great life savers, if you use them sparingly,” comments Wesley. “Be smart about how much money you request so you know you can pay it back. If you continue to have problems, get financial advice from a professional.”
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