How to be smart with payday loans
Payday loans are one of the most versatile debts you can borrow – aside from credit card debt. You can use it for just about anything. Of course, this freedom will have to be done with a lot of thought and calculation. It may be worthwhile to have all this extra money, but the debt must always be treated with caution. You have to borrow wisely because debt, if used properly, can help improve your financial situation. But if you abuse it, you can say goodbye to the financial stability you already have.
It seems that the demand for this type of loan is increasing. At least, this is according to the data combined by Forbes. The article mentioned a Bankrate survey that revealed that one in 10 consumers were planning to borrow a payday loan in the next 12 months. 18% of these people are millennia. A separate study, conducted this time by UnionCred, revealed that payday loan borrowers will increase in 2016. The estimate is an increase of 5%. The same credit bureau estimated that 13.7 million Americans had taken out a payday loan in 2015. They revealed that it was a popular type of loan for those who enjoyed a good loan. solvency and a stable income.
What are the different uses of payday loans
But how can you use payday loans to your advantage? This type of loan can help you in three simple but powerful ways.
Repay the debt.
One of the best uses of this loan is to pay credit card debt. To be more specific, it is used to consolidate multiple credit card accounts. Sometimes a simple debt restructuring will help you get ahead of your payments. When you borrow the payday loan, you can use it to pay off your balance. This would eliminate your high interest credit card debts and allow you to simplify your payments. You can focus on something else without worrying about missing a payment. Since a payday loan is usually paid at a fixed amount, you can set up a direct debit to eliminate the risk of late payment. Some banks might even encourage you to do this, such as reducing an already low interest rate.
To save money.
It may not be credible to use debt to save money. However, it is possible. The best illustration is when you pay your debts – especially high interest credit card debt. If you have a good credit rating, your payday loans can be borrowed with a very low interest rate. Changing the high rate credit card with a low rate payday loan will save you money.
Since it is easier to repay your debt, the chances of you giving a good payment behavior will be more likely. Not only that, the different types of credit in your credit report will give a boost to your score. You have a payday loan and a credit card debt. The presence of your renewable and staggered debts is a good sign that you can handle different types of debts. If you pay it right, it will have a better impact on your credit report.
Use payday loans correctly
Some people say that using payday loans in an emergency is also a wise way to use it. Many people use unsecured payday loans to help them cope with emergency expenses. About 13.72 million consumers borrowed payday loans in 2015. This was an increase from the $ 10.57 million recorded in 2013. It is expected that 24 million Americans will borrow this type of loan this year, for ’emergency.
While using payday loans for emergency expenses seems a good idea, there are better ways to prepare for them. You can save for unforeseen expenses. Instead of using a debt to pay for it, it is best to save for a cash reserve. In the event that cash reserves are depleted, this is the only time when debt can be used to finance your emergency expenses.
Of course, there are other ways to use your payday loan. Here are a few.
- For renovation purposes. Whether inside, outside or inside the perimeter of your home, a payday loan can help you with this expense.
- For energy efficient appliances. This may seem unacceptable, but you will save a lot if you start using energy-efficient equipment and appliances. It is best to take advantage of the savings while repaying the loan.
- For your vehicle If your car needs to be repaired or serviced, you can use a payday loan to cover the costs.
- For the parties. You have to think about it for a long time, but if it’s a one-time event and you’re not going to borrow a huge amount, it should be fine. Just make sure that you can commit to paying and that you will not compromise your finances.
Important rules regarding the use of payday loans
When you borrow a debt, it is important that you follow a few rules to make it worthwhile. payday loans can be the least damaging because of the interest rate and the amount you will borrow. However, you must always approach it with caution.
Know the reason for the loan.
When you know the reason you are borrowing, you can easily decide whether you are making a smart move or not. We have listed the smart ways to use this loan. If this is not one of the items on the list, you need to think carefully about whether your reason for borrowing is worth the debt.
Have a payment plan before borrowing.
You should also know where you will get the money to pay the loan. Will it come from your income? If so, will you have to sacrifice an expense? You need to think about the payment plan so that you can repay the loan immediately after the repayment begins.
Do the math.
According to Bankrate, the average interest rate for payday loans is around 9%. This is expected to increase as the Federal Reserve has increased rates this year. You have to make sure that the cost of borrowing will be worth it.
Make sure it fits your financial goals.
You should also consider aligning your reason for borrowing on your financial goals. If this does not really contribute to your goals, then you need to think twice before borrowing money. But again, if it makes your life easier, it may be worthwhile to borrow money.
Pay attention to prepayment penalties.
Some payday loans will charge you with prepayment penalties. As much as possible, you should avoid this type of loan. You want the loan gives you flexibility in terms of repayment. If there is no prepayment fee, you can make a lump sum payment every time you have the money. This will help you save on interest.
Beware of scams.
When borrowing payday loans, you must make sure that you only borrow from legitimate businesses. If a company offers a loan term too good to be true, it could be a problem. scam. Check with the Better Business Bureau before giving your details to a company.
Here is a video that discusses the benefits of using payday loans.
Common questions about payday loans
Question: Who needs payday loans?
Answer: People who need money and can not wait for the next payday are usually those who need payday loans. It can be used to pay for an emergency, a renovation, or even the purchase of an expensive item.
Question: What kind of payday loan should I get?
Answer: There are several ways to define a payday loan. It can be defined according to its purpose. For example, a car loan is actually a type of payday loan. On the other hand, you can also rank payday loans based on their interest rates. You can choose a type of fixed or variable rate loan, depending on the interest rate that suits your payment capabilities.
Question: When do payday loan repayments begin?
Answer: Most of the time, payday loan repayments begin after disbursement. In fact, some payday loans are granted with deduction because the lender has already received your first payment and the costs associated with loan approval.
Question: Why do banks refuse payday loans?
Answer: The main reason banks refuse your loan is that they think you can not trust you to pay it back. It may be because you do not have supporting documents that you can repay the loan. It may also be because you already have a lot of loans to start with. Sometimes a bad credit score can prevent you from getting a payday loan approval.
Question: Are payday loans good for your credit report?
Answer: It depends. If you properly repay your loan, your credit report could be helpful. This will show that you can pay this type of responsible loan. However, if you do not pay it back, your credit report will be ruined.