Financial needs have seen the rise of various credit solutions and among such are payday loans. Although expensive, this type of loan can be very helpful when you need some cash to fix an emergency. That is why it is recommended to only take a payday loan when there is a pressing need. It is important that you pay it in full and on time. Failure to comply will lead to added costs that may spiral out of control and mess up your finances even further. Therefore, it is important to do your calculations right before making a commitment to take up a payday loan.
Payday loans are credit facilities issued on a short-term basis and are payable by the next payday. Upon application and approval, money is directly paid into your bank account. The lender expects you to pay back the money with accrued interest at the end of that month. However, there are some cases where a longer repayment period may be agreed upon in the form of installments. Sometimes, lenders can let you choose the period of repayment. However, this decision should always be made bearing in mind this is a costly loan and should be paid back within the shortest time possible.
Costs that come with Payday Loans
Just like any other type of loan, this type of law is regulated by law and is capped at certain interest rates through the governing financial body. Therefore, the financial authority limits the chargeable interests and fees on default for borrowers. Find out what the regulatory body in your area advises if you consider taking this type of loan. There are clear guidelines on the cap for fees payable and the rates for every $100 borrowed.
You should also be aware of the default charges applicable before applying for the loan. Most importantly, the overall cap applicable is made to ensure that borrowers don’t pay more than twice what was borrowed in the first place. Don’t be pushed to take the loan. Ensure you understand the rules governing this type of borrowing.
Take note of recurring payments. Most lenders in this niche ask borrowers to agree to a recurring payment plan referred to as the continuous payment authority (CPA). That means they will take their money directly from your account through a debit card once due. Although it is helpful, it can be a risky affair. You may end up lacking enough money to cater for your monthly bills. In other scenarios, it may take more than your overdraft limit causing your bank to impose some charges. If you are not sure of CPA, get to find out what other options you have in making the repayment, allowing you to cancel it and pay in other ways.
The Trap of Payday Loans
Repaying a payday loan can be challenging especially when not thought through. The lender is in the business of making money and without your knowledge, they may trap you with an extension referred to as a rollover. It is sometimes called a deferral or a further loan. However, this cannot be done forever. The number of times that this offer can be made is capped. An information sheet should, therefore, be provided to you every time, indicating free debt advice providers.
Avoid this trap. These rollovers may look like a great thing for you at that moment. However, it can cause a lot of issues to you since you will be required to pay back a lot more in the chargeable interests inclusive of other fees. You will be left struggling to pay for other equally important things hence the need to be careful when such offers come through! Prior to taking any payday loan, you should weigh a number of options with fair interests and fees. A payday loan should be the last option to go for.
We all find ourselves in times of financial need necessitating the acquisition of a loan facility. Depending on the kind of situation and how pressing the need is, a payday loan could be your only option. However, you must exercise a lot of caution when taking it because it comes with hefty fees and interest. It should be your last choice and should only be taken for emergency cases only!