When you’re in a tough spot and need money fast, a payday loan can seem like the perfect solution. However, before you take out one of these short-term loans, there are some things you should know. With that being said, let us discuss the five important things to keep in mind before taking out a payday loan. By knowing what to expect, you can make a more informed decision about whether or not this type of loan is right for you.
Not All Loan Companies Are the Same
If you think all payday loan companies are the same, think again. Just like any other type of business, there are good and bad actors in the payday loan industry. When you’re looking for a loan company, be sure to do your research. Read reviews, compare interest rates, and make sure you understand the terms and conditions before you apply.
Of course, you’ll need to repay the borrowed amount plus interest with any loan. With a payday loan, you usually have to repay the loan within two weeks to a month. This may seem like a short timeframe, but it can be difficult to come up with the money if you’re not careful. Before taking out a payday loan, make sure you can afford to repay the amount in full and on time.
Interest Rates Can Be High
If you’re not careful, the interest rates on payday loans can be very high. In fact, some companies charge up to 700% APR. That means if you borrow $100, you could end up paying back $700 just a few weeks later. To avoid this, be sure to shop around and find a company with the lowest interest rate possible.
You May Be Charged Hidden Fees
In addition to high-interest rates, some payday loan companies also charge hidden fees. These fees can add up quickly, so reading the fine print before you apply is essential. Be sure to ask about any hidden fees to know precisely how much you’ll need to repay.
Defaulting on Your Loan Can Have Serious Consequences
If you can’t repay your payday loan, you may be tempted just to let it go into default. However, this is a bad idea. If you default on your loan, the lender may report it to the credit bureau, which could hurt your credit score. The lender may also sue you or send your account to a collection agency. Either way, defaulting on your loan is a bad idea, so be sure to repay it on time.
Taking out a payday loan can be a risky proposition. However, if you’re in a financial pinch, they can be your savior. So, keep an open mind and power through.