You’re looking for a short-term financial arrangement, and decide to give payday loans a try. But if you don’t do it right, you might be putting a lot at risk.
A payday loan seems like a good deal when you need quick cash.
It’s designed to assist you in case of
Such a short term loan can be a life saver, but only if you do it right. I’m all about smart financial decisions, thinking long-term, and being realistic about your current situation.
But when life throws at us something unexpected and cash is needed right now, there’s not much else we can do. The best is to make sure we avoid the most common payday loan mistakes and get out of this as safely as we can.
Payday loans are considered very helpful by many monthly salary receivers because they help them overcome the sudden financial crisis they face at the end of the month or in the middle of the month when they have no money. There is no particular law regarding how many payday loans should be taken in a year.
Taking out a loan from multiple vendors simultaneously is legal in the UK. The limit of the borrowed amount is also relatively high compared to other countries like the US. Read further to know how exactly payday loans work and how many loans you can avail in a year.
What is a payday loan?
A payday loan is usually given to salaried employees when they face a sudden financial emergency. The loan will range anywhere from £ 1000 to £ 1500. It is only given to people who earn a minimum of £ 1000 or above per month and have part-time or full-time employment. This loan is usually paid back in full when the next month’s salary is received.
Certain flexible loan payment options are available for salaried employees with full-time jobs or those who guarantee a steady job. They can choose to pay back the loan in easy instalments with an increased interest rate. For example, they can choose to pay back in 3 months, six months, or 12 months maximum.
A typical payday loan lender will not give you another loan when you are in the process of paying one specific payday loan with them. It does not mean you can get a loan with them, payback in a month, and apply for another loan the very next month.
Here are some things to watch out for when taking a payday loan:
1. Know how payday loans work in your country.
Rules and regulations for loans vary from state to state. They are also different depending on the part of the world you’re in. So you need to get yourself familiar with how exactly this is handled in your place.
In Michigan, for instance, there are some pretty specific things to keep in mind.
2. Borrowing too much.
Many borrowers make the mistake of taking too many payday loans. Certain countries have strict laws preventing their citizens from lending more than a certain amount and not getting a third payday loan before the existing current loans get paid off in full.
The UK government has no such strict laws, and it is possible taking out a loan after the previous one gets completed with the same money lender. It is also possible to borrow from multiple vendors when you already have a payday loan with another one.
The chances of your payday loan application getting approved are very slim as the money lending companies use advanced artificial intelligence-backed systems to check every applicant’s previous debts.
If they feel you already have too many loans and cannot pay them back within your salary, the application will most likely get rejected. Besides, having too many payday loans in the process of payment will reflect poorly on the credit score, which will prevent the banks or the other lenders from giving you money further.
Ideal payday loans in a year
Financial experts state taking two payday loans per year and paying them off in full within the guaranteed time will save enormous amounts on the interest and help increase the credit score rather than reflect poorly on it.
There is no official limit to payday loans unless you consider the mounting repayment options and the interest rate charged for each payday loan. It is advisable to keep one at a time and pay it off within the salary amount without borrowing. Payday loan rollover or getting another payday loan to pay off the first one should be avoided at any cost as it will lead you into an eternal trap that is not easy to quit.
Financial experts advise leaving at least a six-month gap before applying for another payday loan after paying off the first one. This gap will help in building trust and show you are capable of handling your finances better. Such measures will come in handy when you need better financial help than simple payday loans.
Payback through CPA
Setting up a CPA or continuous payment authority for one payday loan you have taken and linking it with your salary account will automatically enable the payday loan lender to debit the money automatically.
This method is fool-proof and safe, where the money will be paid to the lender within the promised period automatically from your salary. CPA helps in avoiding getting another loan to pay off the previous loan.
There are no particular limits to how many payday loans you can get in a year and how much you can borrow. But, make wise financial decisions and lend only the amount you can pay back within your salary limit. Such measures help avoid getting rejected by payday loan lenders during actual emergencies and maintain a good credit score.
Payday loans become generally easy to get once paid back in time and applied for at regular intervals with a three to a five-month gap in between rather than constant requests.
3. Using more than 1 lender.
Some people end up doing this in desperate times. It’s not just illegal, but also totally irresponsible as it leaves you with having to pay more than what you make each month. Exceeding your salary with such a sum of debt will lead to things you can’t imagine.
So stick to one lender. If you use payday loans Lexington, for instance, that would be enough to get you started and cover your short-term financial needs.
4. Not making repayment a priority.
Most often borrowers feel comfort once a loan is taken. It’s easy to borrow money you don’t have and put the next stage of this aside for some time.
You forget that there’s interest. But that doesn’t make it go away. You suddenly start spending on other things, life continues and you go back to your old routine. Until it’s time to start paying the payday loan and you simply can’t afford this.
That’s why one of the top payday loan tips is that you need a budget.
It will keep you focused on the next steps and you’ll always be aware of the amount of money you need to repay monthly.
You’ll plan how to spend the rest of your salary accordingly and thus will stay on track until the money is paid. After which, you can continue living normally.
5. It’s unsecured debt.
When things get complicated in life we stop assessing anything else that can go wrong and just use all our energy to fix what’s happening now. But that’s not a good long-term solution.
With any type of debt, for instance, you’re rarely guaranteed you’ll be safe if you go bankrupt, or somehow can’t afford to repay the loan.
That’s an awful thing to consider, but if you’re providing for your family it’s your responsibility to think about it in advance.
Look for alternatives, or worst case scenarios (even if it means borrowing more money from somewhere else to repay this, after which you’ll be left with the other amount to pay back).
Unsecured debt is a real thing in finance. Don’t underestimate it.
Loans are a serious matter, even the short-term ones. That’s why you need to give it all your attention, plan carefully, think things through, choose wisely when picking a lender and avoid the payday loan mistakes you just read about.