If you’re an American, you may be familiar with the concept of payday loans. Millions of people every year make use of these loans.
In case you are not familiar with the concept, a payday loan is a short-term loan that you have to repay from your next paycheck.
While this may sound lucrative at first, payday loans can take a massive toll on your pocket. However, the sometimes outweigh the cons associated with it.
They are quite useful when you are short on cash and cannot opt for traditional methods due to your poor credit history. There are various lenders who will be more than happy to give you credit without asking too many questions.
But keep in mind that the interest rates and terms will leave a big hole in your pocket. Payday lending is famous for its predatory practices, which often cause people to end up in a debt trap.
Before you find yourself taking a payday loan, here are some things you need to know:
Exorbitant annual percentage rates & additional fees
As per the Consumer Financial Protection Bureau, payday loans have really high annual that are up to 400% or more.
You pay more than what you spent, sometimes double or more than double the original amount in the long run. So don’t forget to read the terms and conditions before applying for a payday loan.
If you are unable to pay the loan within the given amount of time, you might incur additional fees besides the original loan amount. These fees also add up if you borrow more or delay the debt payment process.
According to the Consumer Financial Protection Bureau, more than 25% of payday loans are reborrowed more than nine times.
If you take a payday loan, you will have to repay it in the next few weeks. These last from two to four weeks from the date you accept the loan. Before you decide to take a payday loan, make sure you check your state regulations.
Payday lenders don’t abide by state and federal laws
Although there are authorities that require payday lenders to answer to them, not all lenders are accountable. However, they are required to disclose the amount lent for the Annual Percentage Rate in writing.
Though authorities have cracked down on such lenders in the past few years, many continue to operate under their own set of rules, charging people more than the legal limit. Check if Payday Lenders are accountable to the law before you from them.
Calculate the amount you will pay at the end of the term
Payday Loans may save your life, but make sure you calculate the amount you will have to pay at the end of the term. It is sometimes better to wait for a few days before taking out a loan.
Read the Terms and Conditions carefully
Payday loans aren’t always a good idea. Examine the fine print of any sort of agreement carefully before you enter into it.
In the UK, every lender must be licensed by the Financial Conduct Authority. They are therefore bound by a broad set of rules.
Payday loans may seem like a viable option, but they are not. Things might be different if you take a loan directly from the lender you know.
Payday loans have a lot of hidden dangers. If a safer alternative is available, make sure to search for it before you choose one. Many people who take out these types of loans end up in debt traps that are impossible to escape.
If you decide to take out a loan, make sure that it will not result in you losing wealth, but building more. Go for a loan that has reasonable terms and not-so-high interest rates.
This content was originally published here.