Are you considering applying for a payday loan? It might be the only option to bridge the gap in your middle month financial crisis. However, you might have to think twice before you make your final decision.
Keep reading. I’ll show you the seven critical things you should know before you fall for a payday loan trap.
What is a payday loan?
Let me say that a payday loan is a small loan that can put you in a debt trap. The ninter3st rates are too high, and that’s why it might be easier to keep revolving at one point.
However, payday loans Australia can be a good fit if you have a bad credit score -all that they worry about is your ability to repay the loan.
But first, what are the requirements to apply for a payday loan?
- You should have at least 18 years of age
- You should have had an active checking account for the last three months
- Have a permanent income source -most lenders prefer employment income
- You must provide a valid living address
- Provide your national identification documents
Now,
What a the seven things to know before you apply for a payday loan?
1. The interest rates are very high
This feature is the most notorious regarding payday loans. As much as you can get your funds quickly and without much struggle, you may end up crying at the end.
Consider getting a short-term loan at an APR of more than 400%. That is indeed bad. To make the matter worse, payday loan lenders don’t worry about the nature of their loans.
Instead, they say that they usually deal with high-risk clients with questionable credit scores. That’s the reason why they will charge you high interest. Therefore, if you have a good or excellent credit score, you can go ahead and look for cheaper alternatives.
2. They are short-term loans
Yes, don’t expect to pay a payday loan for five years as if you had taken an auto loan. The payday lender will require you to repay the loan within two weeks. So if you apply for the loan in the middle of the month, you will refund it once you receive your next paycheck. And that’s where we get the name payday-you repay them on your next payday.
3. If you skip a repayment, the lender doubles the interest
Again, it’s that horrible. Imagine getting an APR of not less than 400% doubled? Would that not lead you to a debt trap? Well, it will.
When the lender doubles the interest rate, then it becomes even more challenging to repay the loan. And that’s where I tend to call it a debt trap.
4. We are talking about small loan amounts
Don’t expect to get a payday loan and buy yourself a house or a car. You will only get little money that you can use to buy groceries, repair your car or renovate your home.
That’s why ist usually a financial boost to ensure that you get to your paycheck without starving or walking.
5. You will get your loan faster
This characteristic of payday loans tends to attract borrowers a lot. Imagine getting the funds in your account ready for use within a few hours or at most 24 hours.
As you might have known, many bank loans take more than 24 hours to get access to them. And that’s why payday lap lenders keep on a thriving day in day out.
6. It doesn’t build your credit score
Whether you stay responsible for payment schedules, payday loans will never help you build your credit score. The lenders do not bother to update your information on any of the three credit bureaus.
However, payday loans will still stay on your credit history. And they will negatively affect how other lenders view you.
7. There are no credit checks here
Hurrah! To those with poor credit scores, payday loans are the place to go. The lenders don’t bother to conduct credit checks once you apply for loans. All they want to be sure of is that you can comfortably repay the loan without any strain. That’s why they usually need you to prove that you have a steady flow of income.
This reality floods millions of borrowers with bad credit scores, ready to take this risky loan.
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My take
Now, you know more about payday loans. Do you wish to apply for a payday loan again? Well, it’s up to you to make the right decision about your finances. But then, you know better about yourself and whether you need a payday loan. Just know that payday loans can take you to countless cycles of debt.
If you don’t have pressing issues, consider ways that you can create more income streams. You can start by saving little cash every month, and you will eventually gain financial freedom
