All You Need to Know Before Taking Payday Loans
Payday loans lenders are thriving in places badly affected by financial downturn. While financial downturn prevails in these places, the cost of living keeps going up. In such places, payday loans offer great reprieve. Even in places where people are doing well financially, emergencies pop up, and people have to find cash to address them.
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Payday loan shops have also flourished in such places. Long term loans for bad credit can be a good way to solve your day-to-day emergency. The trick is to pay off the loans on time. If you’re looking to take out a payday loan, here are aspects you need to know upfront:
How payday loans work
Payday loans, sometimes referred to as cash advances, are short-lived, high-cost loans extended to borrowers to address their emergency problems until the next payday. The money is deposited in your bank account, and you’re required to repay the full amount, including interest and other related charges, when your monthly income checks into your account. If you do your due diligence, some instant payday loans direct lenders can allow you to borrow for extended period (3 months) and repay in installments. Note that this kind of loan can worsen your situation if you’re not able to pay it back on time.
The cost of payday loans
Payday loans costs are regulated by law under rules formulated by the Financial Conduct Authority (FCA). This body sets the limit on the amount of interest rate and default fees a payday loan lender can impose on you. For instance, if you borrow a payday loan amounting to $200, the maximum interest you can pay is $50. If you default on the loan, the law requires that you be charged $15, including the stipulated interest rate at the end of the month. This limitation is necessary to cushion buyers from exploitation by lenders who might even charge twice what you earlier borrowed.
Setting up Continuous Payment Authority (recurring payments)
Before extending a payday loan to you, most lenders will require that you establish a recurring payment, better known as Continuous Payment Authority. This gives them the authority to deduct what you owe them straight from your bank account through your debit card. While this is a convenient plan, it can get risky sometimes. You might find that you have zero balance in your bank account to take care of priority budgets like utilities, food, rent, mortgage, car and so forth. It could force you to take a bank overdraft, and this only attracts more charges. If this plan doesn’t suit you, you can organize a sit-down with the lender to do away with it. You can also cancel the plan whenever you wish.
You also might want to read 5 ways to dig out of debt.
Stay away from the payday loans treadmill
Sometimes you find difficulties paying back the payday loan you took. When this scenario occurs, the lender may entice you with an extension called roll over or deferral. They may also propose a further payday loan. However, the law limits the number of times they can roll over your payday loan. Rolling over your payday loan can be a great idea, but it might culminate to more problems. This is because you will have to pay a much higher interest rate, including other charges.
Desist from payday loans if:
- You’re already into other payday loan programs
- You intend to use the loan to repay other outstanding loans
- You don’t have a solid means to pay back the loan
- You intend to use the payday loan to pay for luxuries such as concert tickets, night outs, or new clothes.
Before acquiring a payday loan
You must know upfront how you’re going to repay the loan before applying for it. Situations arise which could lead to shortage of money in your account next month. Ascertain that you have alternative sources of income before engaging in payday loans. Also, do your due diligence to ensure that instant payday loans direct lenders are duly registered by the Financial Conduct Authority (FCA) to alleviate the possibilities of being gamed.