5 Payday Loan Pitfalls & Alternatives, If you have an emergency financial requirement, going for a payday loan may sound like the best solution available to consider. At the time of applying for a payday loan, it is important to have a clear understanding of the common payday loan pitfalls as well. Then you can take a look at the alternatives, which will help you to stay away from trouble.
Here is a list of 5 of the most common payday loan pitfalls that you should be aware of.
- You are relying on payday loans too often
Payday loans are meant to be taken during emergency financial requirements. However, some of the people obtain payday loans two or more times a year. If you are such a person, you need to understand that there is something wrong with the way how you are managing your money.
If you are earning more money than your expenses, you don’t need to worry too much about emergency financial requirements. That’s because you have enough cash in your hand to manage the expenses. If you don’t have enough money in hand, you will have to rely on payday loans.
People who come across the need to obtain payday loans several times a year should take their time and see why they are not in a position to manage money effectively. Then you will be able to figure out all the underlying financial issues that lead you towards obtaining payday loans. Along with that, you will be able to fix those issues and get rid of the need to obtain payday loans several times per year.
- You will have to pay excessive fees
You will have to pay fees at the time of obtaining a payday loan. The fee associated with the initial loan you obtain is quite hefty when compared to the amount of money that you are borrowing. However, the subsequent fees that you will have to pay on the rolled overbalances are nightmares. The annual interest rate you have to pay will be in between 390% and 780%. As you can see, this is much higher when compared to the interest rate associated with personal loans and even credit cards. Therefore, it is important for you to repay the payday loans that you obtain in a timely manner.
- There is a possibility for the payday loan to roll over
Payday loans are provided to you during emergency financial requirements. The lender will expect you to settle the loan within a period of two weeks. Time flies fast and the two weeks can get completed faster than you may assume. This will eventually lead you towards paying the excessive fees that we discussed above.
You need to make sure that you are in a position to find money to clear all your debt within a period of two weeks. In case if you don’t have enough money, you will have no other option than to pay a massive amount of money. That’s because of the payday loans automatically rollover.
- Payday loans build credit
When you are paying a personal loan, you will be able to keep on building credit. However, you will not be able to build credit in such a manner by obtaining a payday loan. If you obtain a loan from a credit union or a bank, the lender will keep on reporting about your repayment to the credit reporting agencies. However, you will not be able to see that happening when you go ahead with payday loan lenders. They don’t report to the credit reporting agencies and they are not even bound to report like that. Therefore, you cannot expect to see any positive impact on your credit score, even if you have paid the loan in full, without any delays.
- You may not be able to afford bills for the next month
If you are a person who is struggling to cover up the monthly expenses, going for a payday loan is not the best solution recommended. In fact, it will make you suffer a lot in the upcoming months. Once you obtain the payday loan, you will have to settle the amount within a period of just two weeks. After you do that, you will notice that you don’t have enough money in your hands to cover up the utility bills for the next month. You should be mindful of this. This might tempt you to go for another payday loan, but it will lead you towards even more trouble. This is where you need to be aware of the recurring expenses at the time of getting a payday loan.
Pay your attention to these pitfalls and make sure that you don’t run into any difficulties with the payday loans.