Did you know that an estimated 12 million Americans use payday loans each year during financial hardship?
Payday loans can be life-saving, and they can be a helpful bridge for those living paycheck to paycheck or on fixed incomes.
Moreover, with nearly a quarter of Americans living without enough savings to cover an emergency, these accessible loans can be the only option for this group.
That said, it is still important to understand mistakes that can be made when looking into payday loans as a viable option for short-term expenses and emergencies.
Read on to learn how to avoid payday loan mistakes and to determine if they are the best option for you.
Seven Big Payday Loan Mistakes to Avoid
In thinking about payday loans, one should have a good grasp on what they are and how they work.
Payday loans are short-term, high-interest loans that you get from lenders that typically do not require a credit check. Rather, you simply have to have a valid checking account and identification.
This can be helpful for those that have no credit history, or bad credit history as other lenders typically will not even consider these individuals.
Additionally, the amount borrowed typically would be equal to your upcoming paycheck, which will be withdrawn to be paid back to the lender on payday, alongside additional fee’s.
Based on this understanding of this type of loan, here are seven things to avoid when looking to get one.
1. Always Picking Payday Loans First
The number one mistake people make is to go straight for payday loans. While sometimes they can be your only option, it is a good idea to take a full inventory of solutions to short-term expenses that you can’t cover.
Consider ways you could temporarily increase your income, such as through the “gig economy” through ridesharing or other profitable side gig’s, as well as odd jobs for friends and family.
You could also consider borrowing money from friends or family, or choosing a lower-interest personal loan when possible.
Either way, it is a good idea to really ask yourself if a payday loan is your only option.
2. Using Payday Loans to Pay off Debt
Generally, if you are paying off debt, either through credit cards or otherwise, payday loans are not the best option.
This is because they also incur a high-interest rate, and it might not make financial sense.
Therefore, it is a good idea to compare the cost of payday loan fee’s to your potential late fees before making the jump.
3. Not Learning How Payday Loans Work
Again, the biggest mistake and point of confusion is that many borrowers do not know how these loans work.
This is vital because if you aren’t careful with your borrowing habits, you could end up in deeper trouble than before.
Be sure to read up on payday loans so that you can make an educated decision on whether to get one and determine the best potential lender.
4. Borrowing More Than You Need
The most your borrow, the more interest and fee’s you will likely have to pay. Therefore, it is very important that you know exactly how much you absolutely need to survive.
This is not the time to take out a loan to buy your sweetie dinner or a nice necklace. Rather, the loan should be used for necessities or emergencies, not discretionary spending.
The best way to use a payday loan service is simply to bridge the gap when you have an unexpected expense, and they shouldn’t be used to consistently live beyond your means. This will likely end up hurting you in the long run.
5. Not Exploring Different Lenders
Once you establish that a payday loan is a good fit for you, always compare different lenders to ensure you find the best one.
Before any paperwork is signed, read the fine print. Though it is tedious and time-consuming, it can save you from making a big financial mistake.
Some loans can have much higher interest than others, and if you are not made aware of this going in, you will end up paying more than expected without any laws being violated.
Moreover, if you feel any level of discomfort in speaking with a payday lender, it can be a sign that the lender isn’t right for you. Here is a helpful article on payday loans that you can use as a guide for your search.
6. Forgetting About the Fee’s
Fee’s are what make the payday loan world go round. It is how they can stay in business, and help Americans in need.
But, if you aren’t aware of them, or don’t compare fee rates for different lenders, you can be caught completely off guard.
Again, read the fine print. Then, read it again. Do not leave a payday loan lending office or website without fully understand your financial obligations.
While it can be easy to get caught in the emergency of the moment, you should spend some time considering what the future you will have to deal with.
7. Not Prioritizing Payments
Once the loan is taken out and the immediate financial crises averted, you should immediately consider your payment plan for the loan.
If you can pay it off in full on the next payday, this is the best option. You will avoid any additional fee’s or interest incurred from rolling over the loan.
However, if you cannot do that, you should try to set a goal to pay it off as soon as possible. Determine what the maximum amount you can pay each month is, and set the payment plan into motion.
The last thing you want is to get stuck in a perpetual state of payday loan debt, as this can be a very costly predicament.
Find the Best Payday Loan for You
Now that you understand more about payday loan mistakes, you can avoid them and choose the best loan service for you.
In closing, be sure you read the fine print before you sign so that you understand the expectations and procedures, as well as the fees. Moreover, explore different lenders, and options for emergencies.
Ready to solve any short-term financial issue you may face? Consider requesting a bad credit payday loan to bridge the gap between your paychecks – that can feel daunting.