A payday loan refers to a short-term loan, usually of a small amount, that a borrower uses to pay for expenditures when there’s a shortage of cash before their next payday. Online payday loans are generally useful to those who need extra financial help for emergency payments — the kind that absolutely can not wait for any reason.
When you opt for this particular type of loan, you’ll usually write a check that includes the loan amount and fees and send it to the lender who then deposits the check on your next payday. There’s no need to specify the main reason why you need the loan. The only important thing — to the lender that is — is that you have the necessary resources to repay the loan when it becomes due.
There are various reasons why people resort to payday loans. The most common reasons are for getting an online payday loan are…
- Bills that you’ve been putting off for too long.
- Credit card bills.
- Payment for unexpected repairs, such as car/appliance/home repair.
- Payment for unexpected hospital expenses of a family member.
- Death of a family member or friend.
- Travel expenses.
See our complete list of Rightful reasons to get a payday loan.
1. The Risks of Online Payday Loans
At first glance, online payday loans do seem like an immediate solution to a cash shortage. The process is very easy once you get approved then the funds will be transferred to your bank account directly. The process seems easy enough and you don’t have to move an inch from your home. It’s the very definition of convenience. Unfortunately, though, this so-called convenience disarms people to the long-term dangers of online payday loans, regardless of how easy they are to apply for.
Cash loans and online payday loans come with certain inherent risks. If you’re not careful enough, such a loan can become a huge, long-term debt that will be dreadfully hard to get out from under.
The most considerable disadvantage is the high-interest rates charged by the lender. For instance, many payday loan lenders charge 10% to 25% interest on the loan, and if you fail to pay the whole amount due on your next payday, then the loan will be extended and you’ll have to pay another finance fee. The “interest you owe” doubles.
Not all online payday loans are like this, but many of them are. That’s why it’s so important to know exactly what you’re getting into.
2. Hidden Fees For the Unfortunate and the Unknowing
These firms make most of their money on hidden fees, associated fees, payback percentages, and ungodly high percentage rates. You must be properly informed before jumping into the loan bandwagon.
Furthermore, critics of these loans accuse lenders of exploiting the financial hardship of people for gaining massive profit. Unknowing and unsuspecting customers get locked into a cruel cycle of debt and credit dependency. A lot of payday lenders target the poor and the young who are less knowledgeable about these financial traps — and it often works.
After all, even the most intelligent, educated people to succumb to mistakes when broke and in dire need of cash for an emergency.
7 Ways to Beat Payday Lenders At Their Own Game!
Equipping yourself with the right information and a full understanding of online payday loans is the key to coming out as a winner. If you go in with no information, no knowledge, and no understanding of the process without hand out, well, that’s like jumping in a great white shark tank covered in chum — you won’t be left unscathed. Having said all that, follow these 7 simple tips to make sure the process goes as smoothly as possible.
1. Shop Around From the Best Deal
Yes, you may be in dire need of extra money and you want it as soon as possible, but doing some research can save you a lot in fees, interest, and headaches. Find out as much as you can about payday lending companies and assess which one offers the most advantageous and trustworthy deal. Be sure to compare interest rates and finance charges.
It’s ignored far too often by desperate people in need of fast money. Rather than taking an extra hour or two to compare rates and lenders, they jump at the first online payday loan lender that shows them a good deal — even if it isn’t.
2. Don’t Trust Immediately, Do Your Due Diligence
Numerous bogus online websites claim fast processing of payday loans but only aim to steal your financial details; be it for robbing your bank account directly or stealing your identity for later.
A lot of these scammers promise to lend you money with incredibly low fees; 2%, 3%, or even free for the first time. Just imagine what they can do to your hard-earned money in the bank. Do a BBB check if you’re at all worried (Better Business Bureau). Luckily though, most of these scam sites don’t last long before they are shut down by authorities.
3. Pay Promptly, Pay Quickly, Pay Early.
Try to make it a point to pay as soon as you can. Payday loans are not actually meant to be long-term loans and they charge high-interest rates,
it’s wise that you pay off the entire balance on the due day, if not before. You wouldn’t want to get caught in big debt and need to get another loan just to pay off your initial loan, now would you? Exactly. Plan and pay it off on time, every time.
4. Study the Terms and Conditions Thoroughly. Seriously, DO IT!
Read every bit of the terms and conditions. Don’t skip anything. You might just miss reading some hidden fees in the fine print that could cost you precious dollars. Before you sign anything, make sure you understand everything.
Things will go smoothly if you know what you’re getting yourself into. Some critical points that you need to consider are the interest rate, penalty amount when the loan is repaid late, and other fees.
There are payday loan laws that state everything must be explained by the lender to the lender in simple, easy-to-understand language. However, such laws will not stop a lender from trying to pull a fast one. Remember, they offer loans to make money in the end — they aren’t a charity!
5. Ask, Ask, Ask, and Then Ask Again.
Never hesitate to ask about anything if you’re even remotely confused. Assuming ANYTHING at all about the loan is the clear path towards more hidden fees, more debt, and spiraling financial ruin. If the lender quickly skims over something or doesn’t go into detail or says “that’s not important”, stop him and make him explain what it is.
It doesn’t matter if you “think” your question sounds stupid, just ask it. Why? Because in their eyes, you already are stupid because you’re getting an online payday loan. They’re not expecting financial wizards to apply for these loans, they’re expecting financial dullards without an ounce of common sense or financial know-how. They want you to make a mistake, that’s how they make more money.
I’d rather have the lender think me a simpleton and save money instead of “feigning” understanding and go into debt. How about you?
6. Find State-Licensed Lenders
Doing business with state-licensed lenders will give you maximum protection. Primarily, these lenders need to comply with the state laws, including those that limit collection processes and finance charges. They also have to keep their “licenses” up to date, so they are checked and reviewed yearly in most cases.
The federal law also requires them to disclose all the terms and conditions of the loan to borrowers. Try to familiarize yourself with your state’s payday loan laws so you know the limit of fees that lenders can charge you.
7. Start Managing Your Finances More Wisely
Before you commit to a loan, plan and determine if you can handle the repayment. One thing you should never do is apply for a cash advance loan to pay off another loan. Getting caught in a cycle of payday loans is a vicious and dangerous thing, so manage your money properly.
Try to lower your expenses, save money, and pay debts as soon as you get your paycheck. If possible, set aside a bit of your income and put it in your bank account so you can have extra cash in emergencies. This may not be the easiest thing to do if you live paycheck to paycheck, but it’s crucial if you want to avoid these types of situations.
You don’t even have to put away that much; $10 or $20 a week for a few weeks should do nicely. This will create a nice little rainy day fund that you can make use of when cash gets a bit scarce.