Payday loans are loans where a lender grants the borrower a certain amount of cash that can be used by the borrower for any purpose. There is no specific reason which the cash can be used. Payday loans have gained a bad reputation because of the very high interest rates it gets offered with. Payday loans can often yield between 350% to 400% interest annually or annual percentage rate (APR). This is why most people and financial advisers discourage getting a payday loan.
Despite its bad reputation, many people still borrow under this type of loan because of how easy it is to avail the loan compared to other types of loan. And even to some, it is an effective method. Understanding how a payday loan works and what is needed can help you make a decision if it is right to get a payday loan. You just need to make sure you address these questions:
- Is this the only way I can generate the cash I need?
Getting a payday loan is not bad. Getting a loan that would be hard for you to pay off is. You need to make sure that you have exhausted all means to generate cash before resorting to getting a payday loan. Some would even advise that it is better to borrow money from a friend rather than borrowing for a payday loan. Most friends don’t require an interest to be paid unlike a payday lender who will charge a very high interest rate. Make sure that you borrow when all means of generating cash is no longer feasible.
- Do I have enough money to pay off the loan in full upon due date?
Making sure you have enough money by due date is one thing. Making sure you have enough to last you the entire period after paying off your debt is another. It is important to consider that once you pay off your debt in full, it creates another shortage in your income. If you do not have enough cash to pay off the loan and to support your expenses throughout the period, you may end up rolling over your debt and increasing your total amount payable.
Asking yourself these two questions will guide you how necessary it is to opt for a payday loan.