14 Aug How to Avoid Common Pitfalls of Payday Loans?
You’re looking for an immediate short-term financial arrangement, and decide to give payday loans a try. But if you don’t do it right, you might be putting yourself under a lot at risk. Therefore, it best is to make sure to Avoid Common Pitfalls of Payday Loans and get out of this as safely as we can.
There are many reasons why someone might need to borrow money. These reasons can be to pay off a short-term debt, to acquire a mortgage for a house, or just to maintain week to week spending.
A payday loan seems like a good deal when you need quick cash. Also, when life throws at us something unexpected and cash is needed right now. There’s not much else we can do rather than opting for payday loans.
But once a person gets stuck in a downward debt spiral of these Payday Loans with endless rollovers and hidden fees. They can quickly see their credit harmed and bank accounts emptied, especially if they take a loan from an unscrupulous lender.
So, to help you with this we have made a list of some common pitfalls that you need to watch out before opting for this loan. Along with these Pitfalls it also includes How to Avoid Common Pitfalls of Payday Loans.
You Might Refer Reading: How Do Payday Loans Work
Pitfall #1: Unlicensed Lenders
An unlicensed lender may likely be what is often referred to as a loan shark and thus should be avoided whenever possible.
Loan sharks are unlicensed lenders who tend not to follow state laws and very often use predatory lending practices to take advantage of consumers. Such as tricking consumers into debt traps, charging excessive interest rates, or practicing illegal debt collection practices.
A licensed lender, on the other hand, is authorized to do business in your state and is bound by the laws of that state. To confirm whether a lender is licensed, contact your state regulator or attorney general.
Pitfall #2: Payday Loan Middlemen
A payday loan “middleman” is an institution or a website that doesn’t lend money directly to consumers. Instead, a person has to go through multiple companies that act as payday loan middlemen to get their payday loan.
Getting a loan from a direct lender is often a safer as well as cheaper option. This is because it means fewer companies acting as payday lending loan middlemen will have access to your personal information and you are less likely to be charged a “brokerage” fee.
Pitfall #3: Not Considering Cheaper Alternatives
Before you take out a payday loan, consider other options first to try to raise the money you need.
Options to Avoid Borrowing Money through a Payday Loan:
- Sell Personal Possessions You Don’t Need Anymore
- Cut Back on your Expenses
- By Making Extra Income on the Side through other work
Borrowing Options that may be Cheaper than a Payday Loan:
- A Credit Card Advance
- A Personal Loan
- Advance from your company
- Borrowing from Friends and Family
Pitfall #4: Getting Hit with Hidden Fees
Before taking out a loan, you must ask your lender about any potential fees you have to pay in addition to the principal and interest of your loan.
Some most Common Hidden Fees Include:
- Loan Application Fee
- Undisclosed Missed or Late Payment Fee
- Returned Check Fee
- Customer Service
- Overdraft Fee
Pitfall #5: Not Understanding the APR on Payday Loans
The APR (Annual Percentage Rate) gives you a good measure of how much you will pay for taking out a loan. The APR is also measure of how much interest you will be paying on a loan expressed as a yearly rate.
In addition to the interest rate, an APR often includes any additional fees charged for taking out the loan. Depending on the length of the loan, a higher APR typically means a higher cost to you.
Most states will have the APR fixed by law so licensed payday lenders are limited in how much they can charge consumers. However, before taking a payday loan, it is always a good option to compare the APR of the loan you are about to take against the average APR in your state.
In addition to APR, make sure to always look at the length of the loan when calculating the total cost. Just keep in mind that, when assessing the total cost of your loan, the duration of the loan is as important as the APR of the loan.
Pitfall #6: Getting Trapped in a Cycle of Debt
Research indicates that most of the payday loan borrowers are forced to rollover their loan. A rollover results is a fee that a borrower needs to pay if they can’t pay off their loan by the due date.
This results many borrowers are force to pay multiple rollover fees during the lifetime of their loan. This is often referred to as the “debt trap cycle”.
To avoid getting trapped in a debt cycle, you must avoid rollovers at any cost.
Tips that Might help you to Avoid Debt Traps:
- Never take out a payday loan if you think you won’t be able to repay it on its due date.
- Find a payday lender who doesn’t allow rollovers.
- Find a payday lender who offers extended repayment options.
- Familiarize yourself with the payday lender laws in your state.
In case you already find yourself in a debt trap, try out some other potential methods on How to Avoid Common Pitfalls of Payday Loans. A non-profit credit counselling can also help you with this to make sense of all your options.
The Takeaway
Knowing and avoiding the most common payday loan pitfalls could save you from potential financial problems.
Consider following the simple tips we mentioned above to try to access the money you need while avoiding potential financial complications that may arise from using payday loans.
We hope you have now understood How to Avoid Common Pitfalls of Payday Loans. So, here we will put an end to this blog.
If you have any queries, feel free to connect with us through comment section box below. Till then, stay tuned………….
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