You’ve heard the negative chatter about payday loans. It’s as easy as 1-2-3 to get approved. But once you have the cash in hand, brace yourself for the exorbitant interest rate and the influx of fees. But is there ever a time when it makes sense to take out a payday loan, despite the sky high-interest rates? Keep reading to discover when it may make sense to take out a payday loan, and how to avoid getting taken for a ride by the lender.
The Case for Payday Loans
In most instances, you’ll only consider taking out a payday loan, “short term loan” if your financial situation is dire and:
1. Your credit is in shambles, so a personal loan is not an option.
Payday lenders rarely conduct credit checks. They’re more concerned with your employment status and ability to repay the loan. For this reason, many who can’t get through the red tape at the bank usually turn to payday loans.
2. You need fast cash.
When you’re in a bind, you don’t have much time to gather the cash you need for that flat tire replacement, costly prescription, utility bill or any other pressing expense. So, most payday lenders offer same or next day funding options.
3. You’ve depleted your savings account and family and friends can’t loan you the money.
Sometimes, family and friends want to lend a helping hand but are low on funds. And if your savings account is empty and exhausted all your other options, you’re left with no other choice.
4. Payroll was delayed.
Is your company going through a rough financial patch? Or maybe there was a glitch with payroll processing? Either way, your check will be delayed and your bills won’t get paid unless you take out a payday loan.
How to Manage Payday Loans
Read the fine print, According to the Consumer Financial Protection Bureau, most payday loans are for $500 or less. But despite the small amounts, interest rates can linger around 400 percent.
Run the numbers, Calculate the total cost of the payday loan before signing on the dotted line. Assuming you take out a 14-day payday loan for $500 at 417 percent, you’ll spend a total of $580 if the loan is paid off by the due date.
Pay the loan back on time.
Most payday lenders require you to write a post-dated check or provide your banking information so they can withdraw funds on your next payday. In the event the funds aren’t in your account, you will incur fees from both the bank and payday lender.
Don’t fall for the “extension offer” If you discover you can’t repay the loan back by the due date, the lender will offer you an extension. But taking advantage will result in the accrual of more fees and interest.
A Final Thought
Most importantly, work towards getting your financial house in order so history doesn’t repeat itself. Start by building an emergency fund and devising a debt management plan, and your wallet will thank you later on down the road.
Written By: Allison Martin
Writer For: Easy.Credit