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Things to do before taking out a Payday Loan

A payday loan is the short term loan of a relatively small amount. As the name suggest, it is designed to tide you over temporarily, or until payday. For this reason, such a loan is also known as a salary loan or a payday advance. While taking out a payday loan can be very helpful as a quick solution to get you out of a tight financial spot, it is still important to keep your wits about you and know what you are getting into.

  1. Figure out whether a payday loan is the best option. You might be able to arrange for an advance on your paycheck from your employer, or arrange to make payments on bills such as utilities and phone, which normally do not accrue interest. Alternatively, you may find a cheaper source of credit – borrowing from family or friends, negotiating a small loan from your bank branch at a lower rate of interest, or a cash advance on your credit card.
  2. When a payday loan seems to be necessary, make sure you are well informed about the APR (Annual Percentage Rate) – the total yearly rate of interest – as well as additional charges and fees, such as transaction fees and late charges. All Payday Loan stores and other lending institutions are required to provide this information. If at all possible, try to take the time to shop around and compare the real cost of the loan from several different lenders.
  3. A payday loan store will frequently ask you to give them a post-dated check for the amount of the loan plus interest and additional fees. Carefully note the date of the check and make sure you will be able to cover it. If this check is deposited but bounces, your bank will charge you an overdraft fee – more money that you can’t really afford. Your credit record might be affected as well.
  4. Compare bank and loan store terms. Some banks will issue payday loans. Their rates may look better than the loan stores’, but be aware that your bank has access to your account. Should you be late in repayment, the bank can take the needed funds, leaving you short for other essentials, such as car or mortgage payments.
  5. Remember that while payday loans are readily available sources of quick cash, they do need to be repaid eventually and will end up costing you quite a bit in the long run. If you are chronically short of funds, consider taking on a part-time job to supplement your income or going for consumer financial counseling.
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Grace Chen
Grace Chen - Writer & Editor
A graduate of the Haas School of Business, University of California, which is one of the top three (3) business schools in the U.S., Grace Chen has 10 years of experience in this field and have been delivering stellar business content through her written word. She’s the chief editor of Communicate Better and has written and edited thousands of content published in various online and printed media, including the NYSE-sponsored research studies and MEC Global. Connect with Grace on LinkedIn, https://www.linkedin.com/in/grace-chen-9254ab8/

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