How to Avoid the Pitfalls of Payday Financing
June 21, 2010 by admin
Undeniably, payday financing can help people who need money fast because you can get approved for a loan in as quickly as 24 hours, and some even less. In addition, it provides a means for those with less than desirable credit history to be able to borrow money, after they have exhausted all other loan options.
However, the problem with payday financing is that consumers have to face high rates, and this is true even for borrowers who are considered low risk. In some states, payday loans are even unregulated, and without proper examination, audit, and monitoring of these lenders, it makes it difficult for consumers to find trustworthy payday lenders.
But, just because there are disadvantages to payday lending does not mean you should seek other avenues to borrow money from. There are times when payday loan is the most feasible option, especially if you are going to need it for emergency purposes. The point of the matter here is that a payday loan per se is a good option, but in order to benefit from it instead of having to bear the burdens that are often associated with the irresponsible use of this kind of loan, you need to fully understand what the possible pitfalls are and how you can avoid it.
1. Unethical Lenders
As mentioned, some states like California do not have regulating bodies. Consumers should be doubly vigilant in finding good lenders and being able to spot the bad ones. Lenders that do not disclose actual rates and how they compute the fees and payable amount should be avoided because with these companies, you are in for some unwelcomed surprises once you see the amount you need to pay.
2. Rollovers
Many lenders, even the reputable ones, offer a rollover option to those who borrow money but are unable to pay in the specified date. As much as possible, avoid going into a second loan to pay off the first loan, unless you want to be paying sky-high rates. Rollovers will inevitably lead to a spiraling debt that will never end. Availing of repayment plans with payday loans is hardly a good idea, and will only end up with you having huge debts.
3. Lack of Discipline
There are people who avail of payday loans to pay for their vacation or to buy that designer handbag. As a smart money management tip, try not to live beyond your means and even if payday loans may be very easy to avail, stop the urge to borrow money just to cater to your own personal whims. Having the discipline and the foresight to know the difference between when to loan and when not to loan, particularly with payday financing options is very important and could help you avoid getting into unnecessary debts.
A Wall Street analyst has reported that the average consumer makes 11 payday loan transactions each year. If you do not want to be part of status quo, avoid the pitfalls and instead, use payday financing wisely.