Pay day loans are unsecured loans to help borrowers while they are in between pay days. People with bad credit or no credit history often have trouble obtaining loans, because their credit history usually reflects late payments or nonpayment of debts. Since pay day loans tend to approve borrowers with bad credit, people with bad credit can qualify for pay day loans.
Pay day loan amounts average $300, but you can borrow anywhere from $100 to $1,000 to cover unexpected expenses or emergency costs. You may initially only qualify for a certain amount, but once you demonstrate that you are a responsible borrower, pay day lenders increase the amount that you can borrow.
Pay day lenders charge you a fee for using pay day loans. The fee seems like a manageable amount, but when it is compared to other loan amounts it’s actually quite high.
Paying $15 to borrow $100 for two weeks has an annual percentage rate (APR, or annualized interest) of 390%, whereas if you were to borrow the same amount with a credit card loan at a 15% APR, you would only be paying 96 cents - big difference.
Pay day lenders allow you to roll over your pay day loan, which extends its due date. Rolling over your pay day loan is a convenient option, but it comes at a price.
Every time you roll over your pay day loan, lenders charge a fixed amount. Assuming pay day lenders charge $15 for every roll over, you will be charged $60 just for rolling over your pay day loan 4 times, which extends the due date by 2 months. This means that you will pay out $75 (initial fee plus roll over fees) to borrow $100.
Borrowers often find themselves paying more in fees than what they initially borrowed when they roll over their pay day loans. The fees add up and the pay day loan becomes difficult to manage. Avoid unruly debt by repaying your pay day loans on time and only take out pay day loans if you can afford to pay them back on time.
Use a pay day loan when you are in between paychecks and you need help with some unexpected expenses.
Pay day loans are rather expensive, so using them for unnecessary expenses can cost you more than you may otherwise be willing to pay. Keep in mind that if you use a pay day loan to cover unnecessary expenses, you add about a $15 fee to every $100 you spend.
Students are not usually in a position to repay loans right away, so a pay day loan may not have the best loan terms for students. Instead of obtaining a pay day loan that is due within 2 weeks, consider a student loan that has lower annualized interest rates and a more reasonable repayment period.
Before deciding on a pay day loan, consider all your options. Some options do not have the same charges that pay day loans have and are worth considering.
If you are a reliable employee and want to avoid the fees associated with pay day loans, ask your employer if they will provide you with an advance to cover any unexpected costs that come up.
Your friends or family may be in a position to lend you money while you are struggling. Your friends may offer you a longer repayment period, but be sure to pay them back as soon as possible nonetheless. You want to demonstrate that you are reliable so you can turn to them again in the future if need be.
Start saving up money so that you can have something to fall back on if you are ever faced with an emergency. The great thing about savings is that you don’t have to worry about being charged when you borrow from it, you just need to get in the habit of setting money aside. It’s good to save up for planned expenses and big purchases, as well. Saving up money for such purchases will give you time to decide if you really want to buy it.
If you are intending on using a pay day loan to cover day-to-day living expenses, you are either spending too much on unnecessary expenses or you do not have enough money to cover all your needs. Instead of using a pay day loan, consider cutting back on any unnecessary expenses so that you have more money to cover essentials.
If you have already cut back as much as possible and you are still struggling to get by, consider contacting a government approved Credit Counseling Agency to determine if there are any other services or options available to you. The Credit Counseling Agency can also help you create a repayment plan for any other debts you may have.
In order to qualify for a pay day loan you must:
In addition, borrowers must live in the following states to be eligible for a pay day loan:
There’s a lot of information to consider when thinking about borrowing a pay day loan. Make sure you thoroughly understand all of the costs of a pay day loan before applying for one.