Payday loans can be a good solution for those who need quick access to cash. However, there are certain risks involved with payday lending that should be considered before making a decision. Are you asking yourself, Are Payday Loans Right For Me? We’ll help you decide with the info below.
What is a payday loan?
A payday loan is a type of short term loan enabling borrowers quick access to funds. These types of loans are designed to use for emergency expenses that may occur between paychecks such as home maintenance, car repairs, unexpected medical bills, or tuition fees.
Payday loans generally have a loan term of between 2-4 weeks and are used to borrow relatively small amounts of cash (typically from $300-$500).
It is recommended that payday loans are not used as a solution to combat long-term financial problems and are not used for regular monthly payments such as utility bills. The misuse of payday loans can lead to borrowers entering a vicious cycle of debt.
Do I need a payday loan?
Before entering a payday loan agreement, it is imperative that you understand the short-term purpose of these loans. Therefore, you should only take out a payday loan if you are using it for what it is designed for – covering short-term financial emergencies before your next payday.
If you are between paychecks and an unexpected expense occurs, payday loans are a good way of providing funds to cover the costs. However, it is only a good option if you are definitely able to repay it on the due date when you receive your next paycheck. If not, you risk rollovers or additional payday loans and will constantly be fighting to pay back not just the loan amounts but the mounting interest fees.
Therefore, you only need a payday loan if you want some cash upfront to cover an unexpected cost and if you expect to be able to repay the lender on your next payday.
How much do I need to borrow?
As well as knowing what the purpose of the loan is, you should also be clear in how much you want to take out. Due to the expensive nature of payday loans, you should only ever take out exactly what you need to avoid having to pay back more interest than you need.
Can I afford a payday loan?
Before taking out a payday loan, you will need to consider whether you will definitely be able to repay the amount borrowed on your next payday. In addition to this, you will need to factor in the cost of the fees and interest rates to make sure that you are paying all of this back on its due date.
Payday loans are notoriously difficult to pay back, with many lenders reaping the benefits of this. Only 14% of borrowers can pay back their payday loans on the due date. If a borrower is unable to repay, they have to do a rollover or take out further loans, all of which puts them in a difficult financial position that is hard to come back from. How much would it cost to repay your payday loan?
Are Payday Loans Right For Me and Can I Get One?
Unlike more traditional loans, payday loans are known to be fairly easy to get approved with even those with a poor credit history able to take out this type of loan. However, due to the less strict lending criteria, borrowers pay the price with the high-interest rates and fees.
To be eligible for a payday loan, you will need to show a valid form of identification to show that you are over 18 years old. You will also need to prove employment or proof of income and you will need to have an active checking account ready to receive funds. Exact eligibility criteria may vary between lenders.
In 12 states, you will not be able to take out a payday loan as payday lending is illegal. Even in states where it is not illegal, there are some that operate with specific legal restrictions. Always check beforehand as this may impact how much you are able to take out or other factors such as the amount of interest you will pay or the amount of time you will have to repay your loan.
Is taking out a payday loan the right decision for me?
Taking out a payday loan can be a good decision if you need to cover an emergency expense and can definitely pay back the borrowed amount, plus interest, on the due date. However, there are always other alternatives that may be a better option.
If you have good credit….
For those with good credit, there is no real reason to take out a payday loan. Most alternative options will work out as more affordable for borrowers and will have better lending conditions such as higher loan amounts, longer repayment periods, and far lower interest rates. If you have a good credit score, you are likely to be approved for the majority of loan types and have the option to shop around.
If I Have Poor Credit are Payday Loans Right For Me?
It is true that it will be easier to be approved for a payday loan than it will for other types of credit or loans. However, those with poor credit who take out a payday loan are vulnerable to predatory lending practices from payday loan lenders. These individuals are typically in a less-than-ideal financial situation and the high-interest rates of payday loans can worsen that situation for them. If you are struggling with long-term debt or financial problems, you should try to consider alternatives or seek expert advice before entering a payday loan agreement.
Payday loans should always be used with caution and it is important to know the risks before entering this type of loan agreement. Look up your credit score and learn how to improve your credit score now so you know what you’re working with.