Payday loans are an option to cover unexpected expenses. For example, if you need your car to get to work, but it breaks down unexpectedly, a payday loan can help you cover the expense of the repair. These types of loans are meant for you to use when you're in a pinch and need cash quick to cover a necessary expense. If you're considering taking out a payday loan, here are three pitfalls to avoid.
Only Borrow What You Need
Payday loans are short-term and meant for you to pay back quickly, often on your next payday. For this reason, the typical amount you can borrow is usually $500 or less. However, some payday loan companies allow you to borrow a larger amount and pay it back over a longer period of time, such as three or six months.
This may make it tempting for you to borrow more than you need. However, this thinking could quickly land you in a vicious cycle that is difficult to get out of. That's why your best bet when taking out a payday loan is to borrow only what you need. If you only need $250 and you're approved for $500, only borrow the $250 you need for your unexpected expense. That way you can pay it back on your next payday.
Know the Terms and Conditions
Many people are in an emergency financial situation when they take out payday loans. Because they're in a rush, they often take out the loan without fully reading and understanding the terms and conditions. Payday loans have higher fees, interest rates, and other terms and conditions that are not associated with regular loans. Before signing the documentation to take out a payday loan, read all of the terms and conditions. If you have any questions, or don't understand certain terms, make sure to ask the agent to explain it to you.
Pay Back on Time
Missed and late payments of payday loans have a bigger impact than regular loans due to the higher fees associated with these emergency loans. That means if you miss multiple payments or are late, you could find yourself with very high fees that make proper repayment challenging. This can make your financial situation worse. Payday loans make the most financial sense when you can pay them back on time, as soon as possible. Avoid taking out a payday loan if you're unsure if you can pay it back in the agreed timeframe.
For more information, contact local professionals like those found at Payday Express.