With the popularity of payday loans having drastically spiked in recent times, especially ever since online payday loans were introduced, it has been a saviour for many individuals. These cash loans provided mostly by financial institutions and tech companies have been crucial in helping people meet their overdue payments and manage daily expenses in an economic situation where income has become volatile and expenses have increased. Although payday loans are by no means a sustainable source of income, it is oftentimes the only solution for desperate individuals. If managed carefully, payday loans can provide some much-needed financial relief in difficult times with no serious repercussions.
However, payday loans have garnered themselves a bad reputation among financiers and the general public for being “predatory” and “debt traps”. This is mainly due to customers being over-excited at the thought of instant loans and neglecting to read the terms and conditions prior to accepting the quick cash and finding themselves in deep financial trouble. Of course, there are also a number of unethical lenders who look to take advantage of unsuspecting innocent people in desperate situations. However, if you transact with registered and licensed money lenders, the entire process of receiving and settling payday loans shouldn’t be too difficult to navigate and get out of.
Here are some of the most common pitfalls of payday loans that you should know about prior to applying for one of these instant loans.
Not Looking at Cheaper Alternatives
Even though payday loans are sometimes the best option to get quick cash, if you have cheaper alternatives to collecting the needed cash loan, it’s best to consider those options first. For example, if you are able to cut back on a few expenses during the month, dip into your savings or borrow from a friend, it might save you money. The downside of selecting one of those options is that you’re altering your lifestyle and risking your relationships for possibly a small amount of money. If you don’t have any other viable option or if you need quick cash, payday loans might be a temporary solution.
Relying Entirely on Payday Loans
If you have begun to consider the money you get from payday loans as part of your monthly income, then it sounds like it has already become a problem for you. This happens when you do pay off the payday loans on the stipulated date once you have received your salary, but you take out another payday loan immediately after. If you are used to taking out instant loans on a monthly basis, an unexpected expense or loss of income during one month might send you spiralling into a debt trap. As much as possible, try to limit taking these cash loans only in cases of emergencies.
Taking Payday Loans from Unlicensed / Unregistered Lenders
One of the biggest dangers of quick cash loans is when you borrow from unlicensed or unregistered lenders, also known as loan sharks. This means that any transaction you conducted with them is under no protection from financial regulations, leaving your transaction entirely at risk. If the lender decided to arbitrarily hike interest rates or charge you with hidden fees, you would not be able to take it up with governmental bodies. Most unlicensed or unregistered quick cash loan lenders tend to be extremely unethical, especially when it comes to money collection, and are not institutions you want to conduct business with.
Not Reading Terms and Conditions
Does the idea of combing through a detailed document bore you? If so, you should not be applying for quick cash loans. These unsecured payday loans come with a lot of terms and conditions that, while being clearly listed out, most people neglect to read. This is often the leading cause of borrowers facing unexpected charges and “hidden” fees. Read through the terms and conditions prior to applying for instant loans and make a note of any and all charges. Familiarise yourself with the associated interest rates, full repayment amount, repayment dates, late payment fees, rollover fees, bounced cheque fees etc. before applying for the loan. Do not rely on information given over the phone by loan officers as they might forget to provide you with all the information. Reading and fully understanding the terms and conditions given on the website is a must.
Not Having a Repayment Plan
Finally, if you are planning to take out payday loans with no idea how you will manage to repay it - don’t do it. Even though quick cash lenders usually require you to have a fixed monthly income, if you know that you will not be able to easily repay the loan and think to yourself that you’ll “figure it out” when the repayment date arrives, think twice about taking out instant loans or else you will find yourself in deep trouble, often needing to take out more loans to settle your loans.
Payday loans come with a plethora of benefits and an equal number of pitfalls. Familiarise yourself with every aspect prior to taking out these instant cash loans and save yourself a lot of trouble.