BusinessHABWhen money gets tight, sometimes you need a loan in a pinch. A quick online loan can be an attractive option due to its speed and the relative ease of clicking through a website. These payday loans are, however, very expensive and can leave you in more financial trouble than you started with. Consider alternatives, and be absolutely certain you can pay off the balance on time, before considering a payday loan.
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Search online. If you decide you have to get a loan quickly, you will find a large number of payday loan companies by searching online. These companies typically lend relatively small amounts of money to people at very high interest rates with strict terms and conditions for repayment, which often result in additional costs to the borrower. Only consider a payday loan if you are certain you will be able to repay the balance quickly.
- Payday loans are generally the most expensive way to get credit.
- You can use websites to help you find alternatives to payday loans if you need money.
- Alternatives might include an advance from your employer, an authorised bank overdraft, or a credit union loan.
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Evaluate the costs. If you have found some loan providers online, be sure to write down all the terms and conditions and make some comparisons across different companies. You should look for all the charges incurred by the borrower. This includes the rate of interest, the initial charge to take out the money, and any processing or admin fees that are levied against you.
- Most websites will have online calculators which present you with an amount to repay. Be sure to read all the small print and understand if there are any charges which are not represented.
- The average APR for a payday loan is around 400%, and can go into the thousands of per cent.
- The average APR for a credit card is around 12%. The average for a loan is 7%.
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Be certain you can repay on time. With payday loans, the fees for late payment can dramatically increase the cost of the loan. Payday loans are generally taken out for a specific amount of time, such as a week or a month. If you are unable to repay by the stated date, the loan rolls over and extra charges are added. Ensure you know how long you will have to repay the loan before you begin to incur additional charges.
- The costs of payday loans can quickly spiral and escalate, so clearly plan out how you will pay everything back on time before taking out a loan.
- If you are nearing the payment deadline, but think you will be unable to pay off the balance, resist the temptation to take out an additional loan to pay it off.
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Ask friends and family. If you just need some money to meet an unexpected bill, and it is not something a bank is likely to provide, ask friends and family before turning to an online payday loan. It can be awkward borrowing from somebody you know, but if it’s a relatively small amount of money, and you pay them back swiftly, it can work out well.
- Often you will not be charged interest for small amounts, but it’s important that you repay the trust shown in you by paying it back swiftly and in full.
- Even with interest it would be a better deal than an online payday lender.
- If you do borrow money from a friend or family member, make sure you have written down and agreed all the terms and payment dates.
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Contact a credit union. Even if an online payday loan seems the quickest and easiest way to get hold of some cash, try to think about the potential longer term problems of high interest rates and indebtedness. Banks are unlikely to lend small amounts, but your local credit union might be a better option. Credit unions provide loans at much lower rates than payday lenders.
- Search for your local credit union online, and contact them before going ahead with a payday loan.
Approach your creditor. Often people turn to online payday loans when they are short for an impending payment on something, such as a car, or a utility bill. Before adding more to your debt burden by way of a payday loan, contact your creditor and ask if they can give you a little extra time to make the payment.
- If your creditor believes you to be acting in good faith, they are quite likely to come to an arrangement with you.
- You may get an extension on your bill, but have to pay a late fee for this. This fee is likely to be lower than the cost of the payday loan.
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Avoid the cycle of debt. The short-term nature of payday loans, and the relative ease and speed with which somebody can get hold of the money, can lead to people taking out frequent small loans. When this is coupled with the extremely high rates of interest such firms typically charge, as well as the fees and charges associated with the loan, it can lead to people becoming stuck in a cycle of indebtedness to payday loan companies.
- Typically somebody takes out a payday loan for an immediate expense, but then the cost of paying back that loan means that they struggle for cash, and take out another loan to get by.
- It’s crucial that you break this cycle if you see it begin to develop.
- Get some free debt advice to find how best to deal with your situation, but avoid just adding more and more to your debt.
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