According to financial experts, loans should be taken out after much deliberation. If you are not sure whether you can repay the loan in full on time, you should not think about applying for this type of loan. But if you’ve decided to borrow, indicate below what you should know.
How payday loans work
Actually, payday loans are granted at short notice and the money is deposited into your bank account. Usually, you don’t have to repay the loan unless it’s the payday. However, some lenders let borrowers decide on the repayment method.
On the payday, the lender deducts the principal plus interest from your bank account. The deduction will also be made if you still have to pay your bills.
Recurring payments
Most payday lenders ask borrowers to set a recurring payment. This allows them to deduct the recurring payment from your bank account via your own debit card. So, if your bank account has no credits, you may end up exceeding your overdraft limit. As a result, you have to pay high bank fees.
Avoid the traps
In one scenario, if you don’t repay a loan, the lender may give you another option: an extension or deferral, which is simply another loan. In this situation, you can find it a great solution, but it can lead to more problems. The reason for this is that you have to repay higher amounts due to the higher interest rate. So make sure you don’t fall for it unless you absolutely have to. It is better that you look for a better alternative.
The bad options
Typically, payday lenders tend to promote their business for all kinds of cash flow crises you can imagine. But you shouldn’t opt for a payday loan if you need to pay off other types of loans, or if you want that loan to buy the stuff you don’t need.
You should opt for this type of loan if you have an emergency or need to meet a very important need. For example, if some of your family members get sick and need immediate medical attention, you can consider this option.
When you apply for a payday loan
So, after considering all your options and deciding to apply for a payday loan, you should think about how you will repay it. Will you have some excess money every month to make payments? Will you receive additional income from another source? If you have side businesses that you know you earn enough income to make the monthly payments, you’re good to go. But if you have no other source of income, you should think twice before applying for a loan. After all, you don’t want trouble.
Alternatives
So these are the questions you should know the answer to before making this important decision. You should consider all your options before going this route. For example, you can ask your friend or a relative for money. They can give you some money to meet your needs. One advantage of borrowing from your friend is that your property won’t be taken away by the bank or lender if you don’t repay on time. But in the case of a loan, you may have to expect worse consequences.
Hopefully, you’ll consider these tips before applying for a loan. After all, you don’t want to get into bigger trouble by becoming a defaulter.
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Wendy is now a financial analyst and writer. Wendy has been writing about finance and personal finance since she was a sophomore in high school. She has also been writing for several online publications and published in The Huffington Post, and Forbes Woman.
Wendy is a credentialed financial analyst and has experience working with financial institutions and businesses. Wendy is also a certified financial planner. When Wendy's not writing, she enjoys tending to her many plants, watching TV, and spending time with her family.
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