Alternative ways to get money may come in handy but people who have fallen into payday loan pitfalls may probably wish they never did. This type of fast cash is truly the most successful when used sparingly and with a payment plan in place before the loan is processed. Emergency situations will get people to irrationally search for financial opportunities without thinking them through. When using online payday loans too often or to cover expenses which are beyond one’s income, the borrower is putting themselves into a position of falling further into financial troubles.
What are the pitfalls of online payday loans?
Besides the fact that this money does not come free, there are other potential problems which may arise if the loan is not paid off on the original due date.
- The payoff includes the full loan amount plus fees. If your loan is for $300 and the company charges you $15 per $100, your payoff will be $345. The original due date is typically about 14 days.
- If you cannot pay the loan off in full, high interest rates will then apply to your balance. With two week term limits, the interest adds on quickly.
- If you don’t have the money to pay down your loan at each due date, the interest will accrue on whatever the balance is at the end of the cycle. This becomes a major pitfall for those who do not work at paying off their loan at all.
- When an individual keeps obtaining new payday loans in order to pay off old ones, it is still pricey. Each time a new loan is processed, fees are included. Use 5 payday loans in one year at the above mentioned price; a person will be spending $45 per $300 loan which will cost $225 for 5 of these low cost loans. How low cost is that? If there was any interest added, or a person used a lender with higher fees, this figure only grows larger.
What can a person do to avoid payday loan pitfalls?
- For starters, a person who is looking for a short-term payday loan, comparative shopping is a great way to start the process. Call at least 3 different lenders and ask about their policies and loan costs. You can get a feel for the company through the telephone conversation. Pay attention to the interest rates and payoff options.
- Do your homework to make sure you will apply with a lender located within the United States and not affiliated with Native American tribes. These lenders do not have to follow government regulations which are set in place to protect consumers.
- Pay close attention to lenders who are willing to give more than others will offer. You will want to be clear on their loan policies to make sure you are using a responsible payday lender.
The biggest plan to avoid pitfalls from payday loans online is to not use them. Save as much money as you can so you have your own reserve to pull from when emergencies arise. A savings account is free, it is fast and there is no repercussion to your finances if you don’t get it paid back in two short weeks.
