Sooner or later, all of us are faced with a financial crisis. You may be short on cash, or there is an emergency expense that you cannot postpone and have to pay as soon as possible. This is when some people turn to friends and family, while others choose to get the cash from a third-party loan.
This is when payday loans come in. Yes, you will have the money in your hands in the shortest period of time if you go with this, but still, you should be aware of all the pros and cons, or as the experts would say, “make sure to read the fine print.” In the following article, we will introduce you to this type of loan and tell you about the things you have to consider before applying for it.
What is a payday loan?
First things first, let us provide you with some information regarding this type of loan. Basically, it is a short-termed loan that you have to pay back when you get your next paycheck. When it comes to the amount of money you can get, it varies, but it is usually up to $2,000.
In order to get approved, there are numerous requirements you have to meet. You must be over the age of 18, you must have a steady source of income, that is, you have to be employed, you need to have a banking account, and you to provide the lender with a valid identification document. These are some main requirements, but you can learn about additional ones on SpeedyCash.ca.
Do you really need the money?
This is the first question you have to ask yourself. Getting this type of loan can prove to be quite risky, and you would be surprised to learn how many people just jump in without really considering all of their options.
In some situations, these can come in handy, and this is usually when you have to pay an important bill that cannot wait until you get your next salary. If you are certain that you can pay it back on time and still have enough money, it can be a good idea to apply for it.
On the other hand, if none of your bills are emergencies, meaning that you can pay them in the next few weeks, and you are not certain whether you can afford this cash advance, our advice is to avoid it altogether.
How much money do you need?
Yes, we know that this may appear to be an odd question, but hear us out. When applying for any kind of loan, some people tend to borrow more than they actually need. In some cases, this isn’t necessarily a bad thing, but when it comes to this type of cash advance, it is. If you borrow more money than you need, your interest rate will also grow, so you may face a significant expense.
The bottom line is that borrowing more than you actually need at the moment will not pay off in the long run, so make sure to calculate and understand the exact amount of money you need.
Can you afford it?
The biggest mistake that people make when applying for a cash advance is that they don’t take time to consider whether they can actually afford it. This is understandable to a certain point, but still, this is a crucial step you cannot skip.
In addition, when inquiring about the conditions, make sure to understand what the monthly repayments will be. This is the best way to decide on whether you should proceed with this and determine the duration of the loan.
If you discover that you will be even $10 or $20 short every month, renegotiate the terms with the lender. Ask them to increase the period of time you have to repay them, and therefore, provide you with lower repayments. This is the best way to ensure that you will be able to meet the goal.
What are the risks?
Potential risks are the most important thing you have to investigate before signing this contract. The main reason why a payday loan is usually not a good idea is the fact that the interest rate is very high and that there are also additional fees.
If you don’t manage to repay the loan in time, the interest rate will further increase, and you will be presented with new expenses, meaning that you will have to repay even more money than originally agreed. This is why it is of crucial importance to have a detailed repayment plan that we have already mentioned. Do not, under any circumstances, apply for a cash advance if you haven’t thought this through carefully.
Will it affect your credit score?
If this is the first time you are applying for a payday loan, it will not affect your credit rating. The lender will complete a credit check to make sure that you are eligible to repay them. This will leave a trace for future lenders that will last 12 months. Nevertheless, if you submit numerous applications in a short period of time, your credit ratings will drop, and naturally, the same thing will happen if you don’t manage to pay back the loan in time.
Understand the terms and conditions
Every lender will present you with a list of terms and conditions you have to agree to. We cannot stress enough how important it is to go over every item and analyze it thoroughly. These will include details regarding the requirements you must meet, the interest rate, additional expenses, and so on. Once again, don’t forget to read the fine print. If you don’t understand some of these, make sure to contact the lender and ask them for clarification. They will provide you with all the answers, and only then should you decide whether this is the right choice for you.
Are there any alternatives?
Finally, if you don’t feel comfortable with this cash advance, you should look for alternatives. Why not ask a friend or a colleague to borrow you some money? The greatest advantage of these loans is that they don’t come with an interest rate, and they cannot affect your credit score.
On the other hand, you can use your credit card, apply for an installment or a personal loan, think about the credit union, or simply ask your boss for an advance. If you think about, there are always alternatives.