A payday loan is a small, short-term and unsecured loan, usually taken when you desperately need to borrow some money before your next pay day. Payday loans carry very high interest rates. In fact, you can find yourself paying more interest for a payday loan in a single month than the interest you pay for your credit card in a whole year.
How do payday loans work?
Before taking out a payday loan, or any other loan for that matter, it’s important to understand how payday loans work.
Payday loans work on the assumption that you’re in desperate need of a loan to stay afloat financially before your next pay day, when you are expected to pay the loan back. Lenders use this desperation against you and will charge large fees or demand huge interests. That’s why payday loans should be at the bottom of your list when you are in dire need of a loan.
How do you apply for a payday loan?
If you have ever taken a mortgage or any other long-term loan, you know how much documentation the banks demand before you can get am approval for your loan. With a payday loan, the long process is eliminated. If you are considering taking out a payday loan, most lenders will only require a proof of employment like pay slips or bank statements and a form of identification. Some lenders even allow you to apply for a payday loan online and get back to you within a few minutes.
What do most people use payday loans for and are they really worth the risk?
Most payday loans are not taken for emergency purposes as you might expect. On the contrary, a majority of people taking out payday loans are spending the money on their day-to-day expenses such as transport and buying groceries. This is a concern for worry as anyone with a salary should budget their money to cover their monthly expenses. What of emergencies? Well, it’s always wise to have an emergency fund tucked away somewhere.
In truth, payday loans are not worth the risk; unless for instances where you don’t have a choice. But in most cases, there are always other options out there. Even when you have been turned away by the usual lenders, you can seek a loan with the various credit card facilities designed for people with poor credit.
How to find a reputable payday loan lender
It’s easy to judge a lender’s reputation as most payday lenders operate online. Get on the lender’s website like MoneyLand to see how transparent with information on payment structure, fees and their terms of service. Read third-party customers reviews to know the experience other people have had with a given lender.
If you are in Denmark, there is no shortage of reputable pay day online lenders. Lån online, for example, is one of the best Danish lenders to secure a payday loan from.
Don’t become a regular customer of payday loans
In as much as a payday loan may get you out of a critical situation, you should never get used to these loans. Frequent use of payday loans is an indicator of serious financial problems. And although payday loans may not reflect on your credit history, they will surely affect your financial muscle and ability to borrow longer-term loans. Worse still, payday loans will rarely rectify your financial situation. If anything, they will only make it worse.
Instead of living off payday loans, month after month, work out a financial strategy that will guarantee you more financial ability. Or seek financial counseling on the best way to manage your finances.