Online Loans: Things to Consider Before Applying for a Payday Loan

June 23, 2012 by  Filed under: Loans 

A payday loan could very well be the best solution to meet some of your unexpected expenses like car breakdowns, high gas bills or high credit card bills. Usually, finding a payday loan lender is not difficult, even if your credit reports are not great. payday loan lenders offer online loans with minimal paperwork.

However, it is important you understand your financial situation before approaching any lenders. Firstly, you must understand that you will need to make loan repayments on time, or else the high interest rates will keep mounting up. Taking loans will also mean slowing down on your spending for a while so that the burden of your loan does not pinch too much in the following months.

Always look at alternative solutions first

You could always look for other alternatives before considering payday loans, as their interest rates are much higher than other type of loans. The money will serve your immediate purpose, but on the other hand you will end up paying back much, much more. It can cause chaos on your budgets and savings. One idea is to check if you could get a paycheck advance from your employer. They can deduct the money from your next salary. If that option is not available to you, then you could consider going for an online loan.

Avoid late repayments

If you miss a repayment, the lender will charge you additional late payment fees, which is in addition to the interest. Therefore, you will need to calculate your earnings and spending accurately, in order to maintain your budget along with the loan repayments. There will always be unexpected expenses, and you will need to be prepared for such eventualities. Setbacks are temporary, and so you can get through difficult times by planning your finances smartly.

Beware of the loan cycle

As explained, cash loans can be a useful way to borrow money until your next payday if you have a financial emergency. Unfortunately, most people use them in such an irresponsible way that they end up becoming dependent on them, which leads to no end of financial difficulty.

The problem with payday loans is that they can very quickly lead to trouble. Most people are well aware that the interest and fees on them are very high, but this is the least of the problems with them. The far bigger issue is that they lead to a cycle in which most people who use them have to keep taking out new loans every couple of weeks. This can happen a lot faster than most people think, in large part because with cash loans it is so tempting to borrow more than you need.

Normally when you take out a cash loan you are able to borrow up to half of your take home pay. The problem is that the whole loan has to be paid back as soon as you get your next paycheck. If you borrow the maximum amount plus add in all of the fees and interest and you will find yourself with very little of your next paycheck left. The natural thing to do at this point is to take out another payday loan. Once you get into this cycle it is very difficult to get out of it.

If you are going to use payday loans, and admittedly there are times when they can be useful, you have to make sure that you borrow the minimum amount that you need. Just because you can borrow up to half of you take home pay doesn’t mean that you should. You have to make sure that after you pay back the loan you have enough of your pay left over to get you to your next payday. Otherwise you are going to find yourself in a difficult spot.

I am a widely published financial writer with experience in financial topics ranging from macro-economics to online loan lenders. I have worked with a number of financial companies, small lenders and payday lenders online creating content for their websites.

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