Payday loans are usually temporary, short-term loans (advances to be technically correct) to help you deal with a short-term financial crisis. They are usually expected to be paid off within a fortnight, or on your next payday or as per the agreement. But, they are usually unsecured and so that rate of interest tends to be higher. It is not always that the date of payment has to be linked to the payday of the borrower. However, borrowers need to have an employment records and a payroll.
The approval process is usually very easy and quick, unlike Flex loans where credit ratings are checked. If you are personally present in a store for the approval of a small, payday loan, it can be completed within minutes. Some financial companies like Cashco Financial also grant you the loan online. If you are doing it online, the loan approval process may take a little longer.
The methods of repayment may vary but authorizing the creditor to debit it electronically from a person’s account on the payday is the most common.
A payday loan is popular because it lets you have a small amount of cash which you need immediately but don’t have. The approval is quick and there are almost no credit rating reviews or you won’t have to put something as collateral. It is also easy to repay off. However, you should never use it as instrument for your long-term financial needs.
The problem with payday loans
On the payday, you will not only have to return the principal amount but also pay an additional fee. When you need $300 and get it instantly with a fee of say $50, it seems to be a reasonable deal. People are confident that they can easily pay it off within a fortnight or on the payday. But, although the fee is not much, very often, the principal is comparatively bigger and it is not so easy to repay. So, it becomes a vicious cycle where you continue to pay $50 every month for the next 6 months and you have still not managed to repay the original principal.
That is why, experts warn borrowers to be rational and sensible when taking a payday loan. Long-term loans are better because there is a much more stringent verification of your financial standing, past and present, and you also get more time to repay your loan. The rate of interest is also much lower. Moreover, a portion is used to pay off the actual loan unlike in payday where, paying off the fee doesn’t take care of the principal. So, the balance doesn’t go down.
How can you end this situation?
Understand the privacy policies: Ask questions and understand the policies, that are hidden or those that have not been discussed by the lender. You, should read the loan document carefully and ask for more time if you feel that you will have to enter the fine print. Carefully analyze each point.
Find out about the additional payments: What are the additional costs? When will the money be deducted from your account each month? How do they operate? Find out whether your loan gets renewed automatically. If so, ask them not to do so and ask for your consent beforehand and sign an agreement to that effect.
You will have to make a budget: Start planning for repaying the loan on your next payday. If you have to make some sacrifices like not going to movies, holding off a purchase or not being an impulsive shopper, do them till you clear the loan. Have enough money in the account from which the payday loan amount will be debited. Show more restraint while making purchases.
Can you rollover: Some lenders may allow you to rollover the loan which would give you some more time to pay off the loan.
Refinancing options: Ask a bank with which you have a credit card and only if you have a good credit score whether they would refinance the payday loan. Or you can borrow from a friend and pay him off on a monthly basis. You won’t have to deal with the interest then.
Credit counseling agency: Consult a credit counseling agency and ask for their guidance. They can show you alternative ways to pay off the loan without worsening your credit score further.
A payday is both an angel and an imp. You will have to be careful as to how you use it. If you plan properly and you have strong convictions, you can pay off the loan without letting it spiral out of your hands. Otherwise, you are in for a lot of trouble.