About 40% of Americans don’t have even $400 in savings for an unexpected expense. That’s just a car repair away from being in financial trouble.
Unfortunately, unexpected expenses pop up all the time. If you are part of this statistic, it’s almost assuredly not if but when an unexpected expense throws a wrench in things.
Some expenses can be put off, others can’t. What do you do when you have to come up with the money fast? Payday loans can be a great option. However, sometimes they get a bad rap.
Read on to learn what you should consider when taking out a payday loan. Used properly, this option is a great way to make sure you get what you need.
What Are Payday Loans?
Payday loans are small loans that you can take out quickly. They are typically issued for $1,000 or less and don’t require a credit check. People often use them for unexpected expenses that suddenly pop up when they don’t have the money on hand.
They are very short-term loans. In fact, the name comes from the idea that the borrower will pay it back with their next paycheck or two.
Repayment may work differently than a conventional loan. Instead of making payments, the borrower may have to give the lender access to their bank account or write a post-dated check and leave it with the lender. Regardless of the method of repayment, it’s usually paid off quickly and in only a payment or two.
What should you consider before taking out a payday loan? Let’s take a look.
1. A Godsend in Hard Times
Financial hard times have a way of popping up right when your credit score isn’t exactly where you’d like to be. Trying to take out a conventional loan or apply for a credit card might not be possible in your situation.
It will probably also take too long.
Payday loans are easier to qualify for. They don’t even require a credit check. Typically, the lender will simply look at your income. As long as it’s verifiable, you’ll probably qualify for a loan.
Loans are funded quickly, often on the spot, giving you the ready access to cash that you need for an unexpected expense.
2. Understanding the Costs
Conventional loans typically charge an annual interest rate. Due to the extremely short-term nature of payday loans, they work a little differently. Lenders will often charge a set fee per $100.
You hear a lot about the predatory nature of payday loans. While you certainly can rack up fees and interest, this will happen with any loan that you fail to pay back on time.
As long as you pay back your loan on time, you won’t be subject to any additional charges.
It’s also important that you choose a reputable lender. There are definitely unscrupulous lenders who have no problem taking advantage of loopholes in the regulations surrounding payday loans to make big profits off your financial hard times.
Choosing an established lender in your area that doesn’t charge obscenely high fees will protect you from this problem.
3. Avoiding the Pitfalls
Critics state that people who take out payday loans often get stuck in a cycle of debt that ruins them financially. They take out a loan, find themselves unable to pay it by the deadline, and take out another loan to pay it off or face ever-increasing late fees.
Again, choosing the right lender is important here.
The goal of an honest lender is to help you during a financially hard time. It’s in their best interest in the long-run NOT to break their customers and weigh them down with late fees and penalties.
Avoid the cycle of debt by responsibly paying your loan on time. Additionally, choose a lender that will work with you if you don’t have the funds right when you need them.
Another criticism is directed at newer online lenders. Some of them are turning out to be scams looking for people’s personal information.
As you might guess, choosing a reputable lender is also the best way to avoid this pitfall. At Waldo Financial, we’ve been working to earn your trust since 1999 so we offer the convenience of an online lender with the longevity of a reputable business.
4. Preserve Your Credit
Are you trying to build your credit score? Making on-time payments to your credit cards and other debt is one of the most important factors.
But what happens if you come up short one month?
Payday loans don’t affect your credit when you take them out. This can be a good way to get the money you need to make an on-time payment for another, larger loan. Thus keeping your credit intact and moving you closer to your goal of financial freedom.
5. Convenient to Use
Since loan amounts are so small with payday loans, some people wonder why you wouldn’t simply use a credit card.
First, you may not have one and don’t have the credit score (or time) to get one.
Second, some people feel that having a credit card gives them too much freedom. With such easy access to credit they can easily get themselves in over their heads before they know it.
With payday loans, they have to deliberately think about taking out a new loan. While quick and convenient, it’s still a little more work than just swiping a card.
Looking for a Payday Loan?
Here at Waldo Financial, we’re committed to helping our customers with payday loans when they need it most. We offer terms that are easy to understand and are committed to providing you the best customer service possible.
If you need financial help in Missouri, contact us today to find out what you qualify for!