If you are thinking of taking out a payday loan, it’s necessary that you think of ways on how you can use it in responsible ways without incurring debt–same goes for all types of loans. A payday loan is a quick cash or a short term loan that generally ranges between $200 to $2000 and is ideally taken out to cover financial emergencies, with high annual percentage rate and a short repayment period included in an agreement. You need to be aware of the key areas when taking out a payday loan and things you should avoid if you don’t want a significant debt. It’s important to be careful with how you use them as there could be risks that comes with irresponsible borrowing.
Mainly, the risks attached to payday loans all come down to whether or not you can afford to make a repayment within the agreed date. Some lenders would include an establishment fee of 20% and monthly fees of 4% per month of the loan amount over the selected pay period. So it’s crucial that you plan ahead of making your repayment through your next wage packet, then you will able to understand and accept that risk is a normal part of standard payday loan process.
Responsible borrowing comes with focusing on what will be the actual cost of a payday loan will be and what you can realistically expect to pay back before you receive your next wage packet. Taking out multiple loans just to cover a previous loan you can’t repay is going to build up more debt and make things worse. So, how can you be a responsible borrower? Here are some tips you can consider.
#1 Knowing your reason for taking out money
Ask yourself well, “Why I do need to borrow?” Know what your reason is and study the possible penalties you may have to pay in case something goes wrong. Don’t make payday loans your regular source of credit and a regular habit, unless you can afford to repay them with charges and interest. You can opt for other borrowing options like a credit card or personal loan that has a repayment schedule more suited to your needs.
#2 Understand thoroughly the terms and conditions of the payday loan
Make a research in advance before borrowing. Most payday loan lenders have their full terms and conditions listed on their website so you can come up with a decision. You can be aware of what counts as ethical borrowing and for you to know your rights as a borrower.
#3 Always be aware of its due date
When you borrow money, of course, it comes with a deadline that you have to pay back. You ask, you return. Also, try to avoid borrowing more money than you can pay back when it is due. This is a rule you can use for all credits in general. Most payday loans are due either the next week or within the next two weeks. So you make sure that you have the money to repay the loan with.
#4 Know that you do not get something for nothing
You have to consider this when taking out a payday loan. This kind of loan either has a percentage of the amount you borrowed added to the bill you owe as interest or there is a flat fee depending on how much you borrow. Percentages can be lowered depending on the size of the loan. So check this out when you are getting a payday loan.
#5 Borrow only what you need
Probably the best way to determine if you do really need a payday loan is to question yourself if you’ll be able to get by without one. Don’t make it a habit to use payday loan to purchase something that you can live without unless you need it for you to make a living. Payday loans are your last resort for emergencies. If you have extra cash that you’re saving for something else, you can use it instead of a payday loan.
In reality, it is just common for payday loans to be used irresponsibly, because borrowers lack the idea of understanding the amount of risk that they’re entering with a loan and are not aware of not causing further charges in case they are not able to repay the loan in its due time. For instance, some borrowers takes out a new loan in order to repay the old one which just becomes harder to avoid long term financial problems.
Payday loans are having such a bad reputation mainly because most people use them irresponsibly. Truth is, this loan can really help you out when you are faced with some unexpected expenses, especially if used correctly. Consider these tips to avoid irresponsible borrowing habits so you can also avoid a high volume of debts that is going to be hard to escape from once built up.