Payday loans are short-term credit facilities that you may use in the case of emergency fund requirements. The objective is to provide liquidity in case of an unexpected need. However, before you avail one, here are some important tips to remember.
Consider the use of the payday loan amount
One huge drawback of payday loans is the high rate of interest. The exorbitant rate of interest may result in a debt trap if you are not careful. If your original objective of availing the loan was to overcome decreased cash flow, you may find yourself in huge difficulties and financial crisis. It is important that you do not avail payday loans to meet your regular living expenditure. The money must be used only to meet an unexpected expenditure to avoid falling into a debt trap.
Therefore, before you apply for the loan, you must consider how you want to use the funds. Moreover, take into account the interest expense and whether the higher rate justifies availing the loan to meet your fund requirement. Payday loans may be efficiently used to make an unaccounted purchase but using it for everyday expenses is not advisable. If you use it to meet living expenses, you may miss out on timely repayment or may borrow more after repaying.
Ensure you are able to afford the expense
The rates of interest may vary from one lender to another. However, the interest rate for a payday loan is higher when compared to other types of loans. The rate may depend on the lender’s eligibility criteria and the loan duration. Therefore, you must clearly understand the interest outflow before availing of a payday loan.
The variance in the rate of interest often makes it difficult to determine the amount you will have to repay. It is, therefore, important that you thoroughly read all the terms and conditions before signing on the dotted line. You must clarify the tenure and the exact amount you will have to repay along with interest. This allows you to determine if you are able to afford the same.
Avoid availing of payday loans from multiple lenders
There may be several reasons whereby you avail loan from multiple lenders. However, it not only dangerous but is also illegal. You must only secure one loan against one paycheck. If you avail more than one payday loan, you may find yourself with a huge outstanding debt, which may be difficult to repay in a timely manner.
Furthermore, you must avoid taking a loan from another lender to repay an existing loan. Failing to do this may make it difficult for you to get out of debt and result in a huge financial crisis. A short-term facility may become a long-term liability bleeding you financially.
Payday loans may be used to meet emergency fund requirements. However, you must be cautious about how you use these to avoid falling into a huge debt trap. Ensure you follow the aforementioned tips before you apply for a payday loan.
