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Should you take out a Payday Loan?

A payday loan is a common phrase in the streets. You might have heard it from friends or online advertisements. But do you know what a payday loan means, its terms, and whether it’s right to get one? Well, that’s precisely why I’m here because I will make you know more about payday loans.

What is a payday loan?

I would say that a payday loan is a kind of loan that you get when you have a short-term need between a payday. Then, the payday lender deducts the payment in the next paycheck.

In short, payday loans mature at two weeks. So if you take a payday loan in the middle of the month, you will repay it during the next payday.

Characteristics of payday loans

1. Payday loans have very high-interest rates

The Annual Percentage Rate(APR) of payday loans starts from 390% up to 750%. However, some lenders would even charge more than that in countries that there are no regulations.

For instance, if you take a $500 payday loan, the lender charges you $75 per day. So this is how we calculate the APR:

Step1: Divide the fees charged by the total amount borrowed—75/500= 0.15

Step2: Multiply the answer by 365(days in a year)—0.15*365= 54.75

Step3: Divide it by the loan term, i.e., 14 days—54.75/14=3.910

Step4: multiply the answer by 100 to get the percentage—3.910*100=391% APR

That is what the APR that the payday lender will charge you if you take a 14-day loan. In addition, if you fail to pay, the lender will double the APR. As a result, you may find it hard to repay the loan.

2. Payday loans are short-term

Once you get a payday loan, you will have to repay it during your next payday, which should not exceed 14 days. That’s why you should have a stable source of income before you can apply for a payday loan.

3. The amount of loans is small

In most cases, payday loans do not exceed $1000. So if you need to take a payday loan to solve a long-term financial plan, then a payday loan is not an option. However, you can consider other options like mortgages if you need a home or an auto loan if you need to buy a car.

4. You must have a steady flow of income

Payday lenders prefer you to have a job. Once the paycheck gets into your account, the lender should deduct all their money before you can spend it. That’s why most payday lenders prefer a job and not a business.

5. There is one payment of the principal amount plus the charges

Once you take a payday loan, the lender will require you to repay the whole loan amount in full. Payday lenders do not accept installment payments.

6. You receive the funds almost immediately

Once you apply for a payday loan, the lender releases your money within minutes. And that’s why you can quickly sort out an emergency using a payday loan.

Should you really take a payday loan?

Based on the characteristics mentioned earlier, I would advise you can take payday loans from trusted lenders like Viva Payday Loans. It’s highly possible to get into a debt cycle if you are not careful with payday loans.

There is usually that excitement that you get when you get the cash in your bank account. But when the repayment period comes, things are typically different.

Once you skip a payment for a payday loan, the lender will automatically double the interest rate. Therefore, it will be harder to repay the loan in the long run.

Before you take a payday loan, consider

  • Find other alternatives

For example, you can go to your bank or credit union before rushing to a payday loan lender. In banks and credit unions where you transact, you may get better deals.

You can also consider borrowing from friends and relatives bore heading to payday lenders. However, you better be careful not to ruin the relationships.

  • Create more income streams

Nothing feels good like the ability to pay all your bills on time and still have some emergency kits filled and some other savings. Sounds weird? No, it’s possible to live a life without debts. First, however, you need to get out of your comfort zone and create some other income streams. Do not rest till you can achieve to live a life without debts.

The bottom line

Payday loans should never excite you in any way. However, if you follow the above recommendations, I know you will be here to thank me soon enough.

Innov8tiv.com

Innov8tiv is a dynamic Web source for technology news, resources and innovation, with a special focus on the entrepreneurial advances of Africans on the continent as well as in the Diaspora. This site seeks to not only inform consumers and companies about the latest in tech trends and ideologies, but to shed light on a phenomenon often ignored: the inventive, life-changing and creative engine that exists in Africa and among leaders of color around the world, including the UK, the Caribbean, Australia, and Asia. Send story ideas to info@innov8tiv.com

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