A short-term borrowing that does not require any collateral, a payday loan is an unsecured type of loan that charges a comparatively high-interest rate on the amount given. The principal amount depends upon the amount of your paycheck. The principal is a specific portion of it. You are just demanded to show proof of your employment and permanent address.
Payday lenders will usually ask you to permit them to take money from your bank or prepaid card amount. This process may seem quite simple and convenient, but it’s not the whole truth. These are the four things you must keep in mind before applying for a payday loan:-
Payday loans are expensive.
Payday loans are costly, considering everything. You have a pay a considerable amount of interest on the money borrowed. This interest is relatively higher as compared to other loan options. An average payday loan runs at a 400% annual percentage rate. Along with that, high fees will also increase the amount you payback. They are to be repaid in a lump sum when you receive your paycheck. And, if you are unable to pay them on time, you are charged excessive penalties too.
You may attract negative consequences if you don’t pay the loan on time
You have to pay the loan back within the time frame decided. You may attract severe consequences if you are unable to pay the amount within that time. The amount you owe will keep on increasing over time. Payday lenders may send your account to any collection agency. You may be sued for the amount you have to pay, and even your assets can be seized.
Read the agreement carefully.
When you apply for a payday loan, you must sign an agreement. Your signature clarifies that you agree to all the terms of the agreement. You always read all the terms of the agreement carefully and if you have any doubt regarding any point, clear it straight away with the lender. The agreement has all the terms related to interest rates, penalties, fees, the overall cost of the loan, etc.
Don’t hesitate to ask questions.
Again, if you want to borrow money using a payday loan and if you don’t understand the terms of the agreement, ask questions with the lender and ask them to clear your doubts. What is the total amount of your loan, what are the associated fees, what are the maximum fees, what are the penalties that can be imposed, what are the fees for insufficient funds, and what is the cooling-off period? Ask whatever you need to know.
You may seek other options too.
While a payday loan seems a good option for short-term borrowing, it doesn’t mean that there are no other options. Other options may give you the money you require at a lower interest rate and with more simple terms. Why not to sell the old things? You don’t need to make some extra cash.