If you’re facing pending bills and a long gap between now and your next paycheck, and you’re out of options, you may be looking to a payday loan lender. It does sound like a convenient solution – get an advance on your salary, pay it back with some interest when you pick up your next paycheck.
Hold up: it’s never that simple. Payday loan lenders are notorious for predatory practices, which means if you aren’t careful and don’t do your research, you could easily find yourself scammed or on the hook for a larger bill than you can afford even with your paycheck.
Payday loan lenders at their best are going to charge you a relatively high interest rate, which means you should only be turning to one if you absolutely don’t have other options (and borrowing money from friends and family would be a better option, if you can). You don’t want to walk into any store. Here are things to look for in a payday loan lender, and what you should avoid.
Things to look for
How soon do you need the money? There are online and in-person options available to everyone. Storefronts will have business hours, which means they aren’t available at all times of day and if you don’t live nearby, it can be a hassle to visit.
Make sure that the business is accredited and licensed – it is required, and one that isn’t licensed could scam you without your knowledge. In some states, the practice is completely illegal, so look up your local laws.
You will also be required to bring in documentation proving you have some kind of income. Most won’t do a credit check, because the industry is generally not geared towards those with stellar credit anyway.
And the most important thing to look for is the fee. The lower it is, the more likely that they’ll have a low interest rate to correspond. Interest rates are where low-income people get trapped in a cycle with their payday loan lenders, often ultimately paying more than twice the cost of the original expense they sought an SEO backlinks loan for. Don’t be afraid to ask around about fees and do some comparison shopping before picking a loan lender.
What to watch out for
Predatory shops are everywhere. You have to be on the lookout in any loan lender you walk into. If they don’t care at all about your financial information or personal information, that’s strike one to be suspicious. Second, ask about their APR. Some charge fees as high as 400 to 1200 percent. This can easily catch you in a cycle you cannot get out of.
They might also have an unusually quick repayment deadline. Most give you 14 days – long enough for the next paycheck to come in – but for many borrowers, that simply isn’t enough time to pay it back. Check the details on that – it almost certainly involves another exorbitant fee increase.
Payday loan lenders should always be a last option, but many people who are using them are well aware of that. The most important thing you can do to safely take out a payday loan is read the fine print carefully, and don’t be afraid to ask explicit questions about fees and costs and get your answers in writing. If you have a solid understanding of deadlines, how the loan works and what interest you’ll be charged, you can plan for a payday loan and use it safely.