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Things to Avoid when Getting Payday Loans

By March 22, 2022No Comments

Things to Avoid when Getting Payday Loans

Credit Union Loans

Credit union loans are a popular alternative to borrowing from a bank. These loans typically have low interest rates and flexible repayment terms, making them generally more favorable than payday loans.

Many credit unions offer both secured and unsecured personal loans. You typically need to be a member of a federal credit union to qualify for a loan. However, many credit unions allow you to join online with a small one-time membership fee.

Many borrowers choose to borrow through a credit union because these entities consider your whole financial picture when determining your loan eligibility. Even if you have a bad credit score, you may still qualify for an unsecured loan if you can show your financial responsibility to the credit union in other ways.

Federal credit union loans tend to have lower APR than other personal loans, with the average APR for credit union loans sitting around 8.86%. However, credit unions typically perform a hard credit check when reviewing your application, compared to online lending networks, which tend to perform a soft credit check.

Payday loans aren’t for everyone. If you are struggling financially, taking out a payday loan may only send you further into debt and make it more challenging to save money for future expenses.

However, if you decide that applying for a payday loan is the right choice for your financial situation, there are a few measures you can take to avoid accumulating more debt and having a negative experience with a lender.

Here are a few things to avoid when applying for payday loans to create the most responsible borrowing experience possible.

Late Payments

With traditional loans from banks or credit unions, if you miss a payment, your lender may be generous enough to cancel your penalties and give you a chance to catch up on your payments. However, most payday lenders are not nearly as kind.

Payday loans and other online personal loans tend to have strict, unforgiving terms. When you miss a payment with these loans, you could receive harsh penalties, such as:

  • A severe drop in your credit score
  • Bank overdraft fees
  • Wage garnishments
  • Collections calls

At the very least, missing a payment will most likely lead you to owe more money in the long run, making it harder to repay your loan amounts. We recommend doing everything you can to make each of your payments on your payday installment loan on time.

Outrageous APR or Interest Rates

Payday and personal loans tend to have higher interest rates than traditional bank loans. However, some payday loans online charge higher rates than others. The most expensive payday loans can charge an APR of upwards of 36%, leading you to pay back hundreds or even thousands of dollars more than you borrowed.

Before accepting an installment loan from an online lender, take some time to calculate how much you will be paying back based on the interest rate you qualify for. Then seriously consider whether you will be able to make your loan payments each month with that interest rate.

Not Reading the Terms

Personal loans can have varying loan terms. Some loans that seem flexible and generous up front may actually be trying to trick you into a debt cycle by requiring you to meet excessive terms, such as extreme interest rates or short repayment periods.

Before you agree to a loan from an online payday loan lender, be sure to read through the terms carefully. Review all of the information the lender provides you with, including the fine print, to be sure that you fully understand what you are agreeing to. If any of the terms seem suspicious or confusing, you can always ask the lender for clarification.

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