10 Questions to Ask Before Getting a Payday Loan
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While a payday loan might seem like a fast way to get the cash you need, there are a lot of risks associated with these types of loans. Your goal might be to borrow a set amount of money and then return the exact amount by the specified date, but unfortunately it almost never works out that way. There are extremely high fees associated with this type of loan and if you fall behind even once you can become trapped in the payday loan cycle which could take you months if not years to get out of. Payday lenders are predators looking for desperate people in desperate situations. Before taking out a payday loan, ask these key questions to ensure you have all the facts:
Questions to Ask Yourself Before Getting a Payday Loan
Though payday loans are easy to get, they are costly and can have huge financial reprecussions if mishandled. As such, there are a number of key questions you should be asking yourself and the lender before commiting yourself to a payday loan.
Am I already dealing with financial issues?
If you struggle to pay your bills on a monthly basis then a payday loan will only make your current situation worse. Most payday loan companies are predatory lenders that will quickly double your debt and garnish your wages. Look in to working with a credit counsellor, they can help you with debt management and offer ways to get you on a budget.
Do I really need this money right now?
One of the reasons why this is such an important question to ask yourself is because of the hidden charges and high interest fees associated with payday loans. It might seem like you’ve found a great solution for your financial issues but in reality a payday loan costs more than double what you think.
Can I manage until my next payday?
Some people can find resourceful ways to get extra money through yard sales, selling extra clothes and electronics on sites like EBay or by asking friends or family members for a small loan. Any of these options are better than choosing a payday loan, especially if you only have a few days until your next paycheque.
Are there cheaper alternatives I haven’t thought of?
Though poor credit and low income may limit your credit options, there are still other ways you can get the cash you need without having to opt for a payday loan.
These are all alternatives to payday loans that can help you cover your expenses and won’t cost anywhere near as much as a payday loan.
Will I be able to pay the loan back on time?
If you answer no to this question then getting any type of loan, let alone a payday loan should not be an option for you right now. Payday loans are short term loans that you have to payback by your next paycheque. So, if you borrow $500 to cover an expense knowing your next pay cheque will be $1000, will you be able to handle your rent, food and other expenses with $500? Not paying back a loan on time is one of the worst things you can do for your credit score and could cause serious financial issues for you in the future.
Will paying off a payday loan make me fall behind on my other bills?
As mentioned earlier, if you decide to take out a payday loan and then devote all your income to paying it back you’ll probably have to neglect all your other bills, which will make your financial situation even worse. This could also result in you needing another payday loan which could lead you into the payday loan cycle.
Can I ask for additional hours at my job?
Can you get extra hours at work? Asking your employer for additional hours is another alternative to a payday loan. Rather than taking on a high cost loan that poses all kinds of risks, working a few additional hours can help you cover your expense.
Questions to Ask Your Payday Lender
How much will this payday loan cost me in the end?
Before you sign anything you need to ask your payday lender about repayment, fees, and interest. Depending on the province you live in there will be a cap on the amount of inetrest they can charge you per $100. You’ll want to know this to understand how much this payday loan will cost you in the end. You also want to know exactly what you’ll be charged for each payment and you’ll also want to get it all in writing. This is where it can sometimes get tricky because if they don’t tell you upfront about the hidden fees, you may be hit with charges you really can’t afford.
What happens if I can’t pay the loan off on time?
Next find out exactly what the steps are in the event you miss one payment. You want to find out what the extra charges are that you will be hit with. Then ask what happens if you miss the deadline for all payments so you know how much additional money you will have to pay back. Some provinces will have a maximum cap on what they can charge, so be sure to confirm this in the event you live in a province or territory where there is no cap.
Click here to learn about your payday loan borrowing rights.
Can I cancel the loan or back out early?
If you have concerns after you take out a payday loan, you may have a grace period that will give you a day to cancel it (depending on what province you live in). Check out your province’s regulations in advance so you know all the facts ahead of time. Another great pointer that can help you is to read the reviews on the payday lender you’ve chosen. The horror stories that you find should help you decide that a payday loan isn’t something you want to deal with.
Don’t Make Matters Worse
Payday loans often make financial issues worse, this is why you absolutely need to make sure that you find another options. It might feel like a payday lender is the only lender willing to work with you but this is not the case. There are many private lenders who specialize in working with people who have bad credit or who are in desperate need of a quick loan. Ask for help from your friends and do some research online, we know you’ll be able to find an alternative solution for your money problems.
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Margaret Johnson is in the business of helping Canadians tackle their debt, deal with credit issues, and regain control of their finances.