While setting a family budget is one of the best ways to keep your household finances in order, there are times when money can get tight. You may have had an unexpected expense, such as a medical bill, or your car suddenly needed urgent repairs so you could get to work on time. Sometimes things happen, and we find ourselves scrounging for extra money, especially if our savings account doesn’t have enough funds. For this reason, people sometimes look at payday loans to fill their immediate needs. But there are some things you should consider before you apply for one.
Payday loans are short-term, small-dollar loans that borrowers can take out to cover emergency expenses. In most cases, these loans need to be paid back on the borrower's next payday, thus why they are called payday loans. These loans are currently available in 37 states across the U.S. and are most commonly used for the following purposes:
Despite these reasons you may consider a payday loan, there are some essential things to consider before applying.
Payday loans offer low borrowing amounts, usually $500 or less, that must be paid back quickly. Further, the interest rate on a payday loan can be more than double the loan itself. According to the Consumer Financial Protection Bureau, you can calculate the annual percentage interest rate (APR) for payday loans by dividing the interest paid by the amount borrowed; multiplying that by 365; dividing that number by the length of the repayment term; and multiplying by 100. For example, a typical payday loan for two weeks with a $15 per $100 fee means an annual percentage rate (APR) of almost 400 percent. By comparison, APRs on credit cards can range from about 12 percent to about 30 percent. In the 37 states that permit payday lending, the loan cost, fees, and maximum loan amount are capped. This means payday loans can become a bit of a costly endeavor.
So, before you apply for a payday loan, consider the following:
Payday loan alternatives - Often, there are more affordable options than taking out a payday loan. Consider borrowing from family or friends, negotiating a payment plan with your creditors, or seeking assistance from a non-profit credit counseling agency. Installment loans from Cash Store offer higher borrowing limits, a lower APR, and more flexible terms.
Payday loan alternatives can save you a lot of money and provide higher borrowing limits and more flexible loan terms. Aside from borrowing from a trusted family member or friend, negotiating a payment plan with your creditors, or seeking assistance from a credit counselor, think about if you need the money right now. Sometimes, while it might seem the best thing to do, waiting it out can save you money and headache.
Whatever you do, take some time to evaluate your family budget. Often, the need to consider options such as payday loans is because borrowers need to have the appropriate reserves in their savings account and spend too much on their wants versus their needs. So, whether you take out a payday loan, an installment loan, or borrow some money, look at your budget to see what tweaks you can make to ensure your savings account can protect you in the future.
*The content on this page provides general consumer information or tips. It is not financial advice or guidance. Each person’s circumstances are unique. The Cash Store may update this information periodically. This information may also include links or references to third-party resources or content. We do not endorse the third-party or guarantee the accuracy of this third-party information. There may be other resources that also serve your needs.
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