For many people, taking out a payday loan is a last resort. When you’re in a financial bind and need cash fast, these loans can seem like a lifeline. Payday loans come with high-interest rates and fees that can trap you in a cycle of debt.
If you’re considering a payday loan, here’s what you need to know to avoid the traps.
What are payday loans?
Payday loans are short-term, high-interest loans. Typically, you borrow a small amount of money (usually $500 or less) and agree to repay the loan plus interest and fees on your next payday.
If you can’t repay the loan on time, you can roll it over to the next payday. But each time you roll over the loan, you’re charged additional fees.
If you must take out a payday loan, try to avoid these traps:
- Rolling over the loan
Don’t roll over the loan. This only adds to the amount you owe and makes it harder to repay the loan.
- Paying only the minimum
If you can’t afford to repay the loan in full, at least pay more than the minimum payment. This will help you pay off the loan faster and save money on interest.
- Not shopping around
Don’t just go to the first payday lender you find. Shop around and compare interest rates and fees.
- Not reading the fine print
Be sure to read the fine print before you sign a loan agreement. Know exactly how much you’re borrowing and what the terms are.
- Failing to budget
Before you take out a best payday loans, make sure you can afford the payments. Create a budget to see where your money is going. Make sure you have enough left over each month to cover the loan payments.