If you are seeking credit to help with a cash flow problem, you might be considering a payday loan. Payday loans are short-term loans, designed to tide people over until payday.
Payday loans haven’t always had the best press (putting it lightly), with criticism that their interest rates are too high and that they can be difficult to pay back. However, since many key changes to the nature of the payday loan over the last few years, many have used this type of short term credit as a way to bridge potentially catastrophic cash flow problems successfully. To really know if this is a viable option for you, it’s crucial to understand the loan itself before you commit to anything. Here are some points to consider if you want to find out more:
#1 – Finding a responsible lender – It is VITAL when considering payday loans that you first find a reputable lender. There are two types of payday loan websites; ‘brokers’ and ‘direct lenders’. A direct lender, e.g. Wonga means they offer payday loans directly to customers. A broker can source a loan for you – but beware – you may encounter potential broker fees or miscommunication. Always read the fine print.
#2 –Comparing payday loans – It is important not to apply for the very first payday loan you see. Make sure you do some comparisons in terms of interest rates and repayment periods. Don’t rush this step, as it is important that you find the right deal for you. If you find that one particular lender is trying to rush you into making an application, it is probably best to avoid them completely.
#3 – Repayment periods – Normally you have until payday to pay back your payday loan including the interest, although some payday lenders let you choose the repayment period. It is usually no more than 6 months. For example, you might be considering borrowing R4000 for a maximum of 6 months.
#4 – Paying back early – Payday loans can usually be paid back early to reduce the collective cost of the credit. Make sure you know about early repayment terms and conditions before taking out the loan itself.
#5 – You need a job to get one (and it might affect other loans you have)– You can’t take out a payday loan if you have just lost your job. To take out a payday loan, you’ll need a job and a salary slip minimum. Taking out a payday loan can also have an impact on other existing loan agreements, particularly secured loans.
According to a fin24 survey, 35% of people with payday loans also have car finance, 94% have one or more personal loan, 79% have credit card accounts and 17% have home loans. It is therefore wise to ensure your other finances are stable before taking out a personal loan – do you really need that extra finance on your credit account?
#6 – Beware of very high interest rates – Interest rates are notoriously high on payday loans, so make sure you calculate the full cost of the loan. The internet has some simple to use interest calculators that show you how much you will really need to pay. This can help you to see the bigger picture when it comes to the loan. You can then make a more informed decision about whether you really need it that much.
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