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Payday loans do not require tedious paperwork and are processed almost instantaneously. This makes them very attractive to borrowers and may in fact be a great solution to important outstanding bills or even time limited offers for items you simply can’t afford to miss. However if proper precaution is not taken they may add to your financial woes instead of helping to end them. Below is a list of the most common pitfalls associated with payday loans and how you can avoid them: 1. Extremely high interest rates: payday loans can attract interest rates as high as 30% weekly amounting to an astronomical yearly rate of up to 500%. Some savvy lenders usually don’t disclose the interest rates in their FAQs and the lender only realizes the trouble they are in once they have signed the papers and have received the cash. To avoid binding yourself in an endless tangle of debt, only deal with agents who disclose their rates clearly. Only take the loan if you are sure you can repay it as quickly as possible to avoid accruing fees that are impossible to clear. 2. They are addictive - many borrowers are tempted to keep going back for more loans once they have enjoyed the first one. They tend to see them as a permanent solution to their problems, using them to repay other debts. To avoid getting hooked to these loans, plan your spending to fit your pay interval well. For example, leave enough cash for the final week of the month if you are paid monthly to avoid the temptation of taking a loan to see you through. The sacrifice you make will be more pleasant than the agony of repaying your debts. Avoid the temptation taking payday loans to service other loans as this will throw you into an endless spiral of debt. 3. They damage your credit rating - defaulting on your payday loan does no good to your credit score. A low credit score may lock you out of opportunity for more important loans such as mortgages. Only take payday loans when it is absolutely necessary and you are sure you will receive enough cash on payday to repay the loan in as few instalments as possible. 4. Payday loans are illegal in many states and not adequately regulated in others- in case you are tempted to take a payday loan, it may be hard to get the law to assist you if you run into problems such as overcharging. Though rare, you as the borrower may be putting yourself in trouble with the law. Ensure you are familiar with the regulations governing payday loans in your area before taking one. If they are illegal, the best cause of action is to avoid them entirely however hard this may be.
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