Stuck at the end of the month because of cash crunch? Partied too hard this month and now finding it difficult to make your ends met till the next salary comes in? Well, this happens with a lot of people like us who at times fail to manage their finances properly. Those days seem to be difficult, obviously and we understand how you desperately look out for every possible way to get through this nightmare.

We reach out to all our friends, but it might be obvious that they are in a similar position. A lot of times, while searching for a way out of this predicament, you may land up to a concept of ‘payday loans’. Payday loans are a quick solution to your cash shortage, do not require much of a verification and the money is transferred to your account within a day. This seems to be a good deal, but like every financial transaction, it is better to hold back, and give some time in researching about the next step you are going to take.

Below we list the negatives first to ensure you understand the implications of short term\pay day loans.

It would be wise to consider debt counseling before considering a payday loan.

Payday Loans

Payday loans are specifically designed for some unforeseen expenditure wherein you need financial assistance immediately. These loans are meant to reach your account by the next day and are to be paid back quickly, generally by the next payday, and hence the name.

Most of the times, the consumers applying for a payday loan are not farsighted when it comes to understanding the repaying of debt and the repercussions of the loan.

When you go to a payday loan lender, the first and foremost thing that is asked is a proof of your current professional occupation. A current salary slip or a bank statement will suffice the purpose for you.

Payday loans charge heavey rate of interest and you may not have looked into the policy prospectus carefully, there may be hidden charges added as well. Don’t be surprised to know if your payday loan interest is ranging upto 500% in annual percentage yield. If you compare, even the top credit card APRs have a maximum rate of late-20s range.

Considering the current economic climate we live in, there are a lot of people who live from pay cheque to pay cheque and find it difficult to cater to emergency financial needs. It is generally difficult for such people to repay the debt so soon and this may lead to rolling over the loan further. This in turn, means extra fees, and increased interest rates, making the repaying of loan even more difficult. The borrower is then stuck in this vicious cycle of an ever growing debt with every paycheck.

What to keep in mind before taking a payday loan?

Now that we have dealt with the advantages of payday loans, it is time to know about a few traps of this loan scheme. Don’t be disappointed if you have a long list here because we are also letting you know about how to be smart enough to not get fooled.

• Extremely high interest rates- this comes unsaid with this loan scheme. Payday loans have an extremely high rate of interest, sometimes as high as 911% for a weekly loan and 212% for a monthly loan. The average credit card rate of 14.60% is nowhere even close to the competition! Even if you have applied for a small amount of loan, you will end up paying an enormous amount of money for the interest alone.

But there are some companies like Finance 27 that provide payday loans at a lesser interest rate of 6.24%. Do your research properly and you will be able to find lenders who do not intend to steal your money.

• Hidden fees and charges- just like there are a lot of hidden charges with banks, same is the case with payday loans. You might be thinking that you only have to pay that mammoth interest next month but the shock will come to you in your bank statement when you will get to see the additional fees that you were probably not clearly informed about. These hidden fees are also the reason why payday loans are are an expensive option.

When you are applying for your payday loan, it is advisable to read the offer documents closely. If you do not understand a clause, feel free to get in touch with the company so you are aware of all the fees and charges.

• Aggressive collection practices- one reason why payday loan services are not considered preferable and may be indulging in illegal activities is that a lot of lenders threaten their customers. If you fail to pay back the loan you may have to face prosecution or any other kind of menacing from the lender. These practices are illegal and are one of the reasons why the government has put up tight restrictions on these payday loan giving firms.

When you are taking a loan from a respected payday loan service, you will not have to stress about any threatening. These companies are professional and understand the importance of dealing with their clients politely. Do not take a loan from a firm whose reviews are not very positive.

• May spoil your credit score- taking payday loans regularly is a sign of your mismanaged financial situation. If payday loans have a credit scoring policy, they will mark your credit score according to your pattern of repaying your loan. Many companies and banks check your credit score before lending you money and in future if such a situation arises, you may be denied a loan because of your payday loan history.

The best way to not let your payday loans hamper your credit score is to keep paying back your debt on time. Also, you must assess your financial situation properly and abstain from making this a habit.

• Not advisable in the long run-  while payday loans may sort your issues in the current scenario, they are an absolute no-no when it come to understanding long term financial conditions. The usually high rates, hidden charges and other aspects make these loans are short term solution.

What is good about payday loans?

Just like everything else, payday loans come with their own pros and cons. There are are some immediate benefits that come with payday loans and there are also some details that you must keep in mind before you look out for a payday loan provider to help you out.

Let us first see the good part of these loans.

• Convenient- Payday loans are very convenient as the only things you need to have for a payday loan are a regular income which means your proof of having a job, a state issued identify document and a checking account. The payday loan lender will only check the basics and it is very much possible that you may be coming out of the loan office with cash in hand.

• Poor credit also works- a lot of people who have had a history of poor credit are also eligible for payday loans. As already told, a person applying for a payday loan only needs to have a regular job, an ID and an account for auto credit of the interest. There is no role of the credit history. This is not possible if you approach a bank for a conventional loan. Bad credit scores means no loans from a bank.

• Apply online- most payday loan services like Finance 27 allow you to apply online for your loan. You do not have to go out to a bank branch, fill up forms and produce various documents the way one needs to do for a conventional loan. The application process for a payday loan is pretty simple and quick and you generally get the money within a day.

During the times of crisis, it is understandable if you approach a payday loan company. But this should not be treated as a permanent solution to your financial crisis. Even if you have to take the help from payday services more than once, make sure they are reputed firms who will not be dishonest.

It would be wise to consider debt counseling before considering a payday loan.