Many individuals have found themselves ensnared in the unforgiving grasp of debt. No one could have predicted the financial tremors of the COVID-19 pandemic, leaving countless unprepared and struggling to keep their financial heads above water.

You may find yourself among this sea of individuals contemplating a payday loan as a potential life raft. While you prepare to navigate these financial waters, we are here to guide you with eight indispensable tips.

1. Pick Your Lender Carefully

You’ll want to partner with a lender who values transparency, not one who hides fees or twists the loan amount or terms. For example, take Lending Bear, a state-licensed lender with an A+ rating from the Better Business Bureau. Not only are they members of Borrow Smart, INFiN, and the National Pawnbrokers Association, but they also adhere to best industry practices and are committed to fair and responsible lending.

With many 5-star Google reviews and a comprehensive website, potential borrowers can easily dig deep into their operations and read thousands of customer reviews. Now that’s a lender worth considering.

2. Know Your Monthly Payment Capacity

Before you set your sights on a payday loan, you must grasp your capacity for monthly payments. It’s slippery from missing payments to accumulating late fees and even sliding into loan default. Be frank about the money you can comfortably allot on a monthly basis for your weekend payday loans repayment. If the monthly repayments feel like a stretch, it’s wiser to scale down the loan amount or seek alternate refinancing methods.

3. Review the Terms and Conditions

After identifying the most suitable loan and reviewing rates and terms, it’s time to delve into the terms and conditions. This is your treasure trove of all key information about the loan, including the interest rate, repayment plan, fees, and extra charges.

If there are any lingering questions, ensure you put them forth to the lender before signing anything. This proactive approach will help dodge any future misinterpretations and guarantee that you’re fully aware of the commitment you’re undertaking. It might be wise to involve your legal counsel in the substantial loan process.

4. Knowing the Risks

The most prominent risk is the possibility of being unable to repay the loan on time. This could trigger a chain of unwelcome outcomes, including late fees, loan default, and even a blemish on your credit score. Some lenders might even escalate matters to legal action against borrowers, making it paramount to be mindful of these risks before applying for a loan.

There’s the danger of your loan application getting rejected. This could occur if you fail to meet the lender’s credit standards or have pending debts with other lending institutions. Ensure you scrutinize the terms and conditions to confirm your eligibility for the loan.

5. They’re Expensive

Payday loans can be a real wallet-buster. These lenders are notorious for slapping on sky-high fees and interest rates that pump up the amount you owe. For every $100 you borrow, you could be shelling out $117 in return, which equates to an annual interest rate of a whopping 442%. This is miles away from the usual 21% interest typically charged on credit card cash advances or overdrafts.

The financial burden can escalate dramatically if you fail to repay the loan within the agreed terms. If you’re contemplating a payday loan, ensure you can repay it promptly to avoid finding yourself in a financial bind, owing more than you had planned. Remember these establishments often provide cheque-cashing services, which also carry a hefty fee.

6. Compare Rates

Each lender is unique, offering varying interest rates and repayment terms. Playing the field before applying for a loan is paramount. In your rate investigation, compare the annual percentage rate (APR), not just the interest rate. The APR is the real deal as it encapsulates all the charges bundled with the loan, giving you a clearer insight into what you’ll need to repay.

When dissecting repayment terms, don’t skim the surface. Look at the total amount you’ll be expected to repay and the repayment schedule. Some lenders insist on full repayment within a few weeks, while others are more flexible with a longer repayment period. Select the loan that aligns best with your needs and budget.

7. Look Into All of Your Alternatives

Before you head to a payday lender, ensure you’ve explored all other less costly and more forgiving money lending alternatives. Even a cash advance on your credit card could be an option. You might want to think about cashing in some vacation days at work or discussing a wage advance with your employer. Another avenue could be selling some of your unused items for extra cash to tide you over.

8. Repercussions If You Fail to Pay

Failing to repay a payday loan as per the agreed timeline can have significant repercussions. Your payment could bounce, leading to increased charges from your bank and lender. The outstanding debt will continue to accumulate until completely paid off.

Non-payment can escalate into your account being forwarded to a collection agency. They will impose their own fees, further inflating your debt. The default may also be reflected in your credit history, negatively affecting your credit score.

Legal action is another potential consequence. You might face a lawsuit for the owed money, or your assets may be at risk of seizure. In extreme scenarios, you could be summoned to court and have your wages garnished.

Lenders may contact your friends, family, or employer to recover their money, leading to personal embarrassment and stress. This can also push you further into debt if you borrow more money to clear the original debt.

Endnote

At the end of the day, taking out a payday loan should be considered very seriously. Payday loans are often touted as quick and easy solutions to financial crises, but the reality is that not all payday loans are created equal. Choosing the right kind of loan for your financial needs and understanding exactly what kind of repayment terms you’re signing up for is essential in ensuring a positive outcome at the end.