If you ever encounter a financial emergency and find your credit card maxed out and other borrowing options out of reach, you may apply for a quick payday loan. However, before you opt for taking out payday loans to meet your expenses, be mindful of the following:
Payday loans are a risky business
The Federal Deposit Insurance Corporation (FDIC) classifies payday lending “among the highest risk subsets of subprime lending”. This means that it involves substantial risks for the lender as well as the borrower.
The cost of the loan
Payday loans cost significantly more than other forms of lending. For instance, according to the Consumer Financial Protection Bureau (CFPB), “a typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400%.” Compared to this, APRs on your average credit card may range from a mere 12 to 30 percent.
There may be hidden charges and conditions
Beware of such charges and conditions before you sign up. Read the agreement carefully and, if possible, search for other alternatives before you agree to take out the loan.
Once you take into account these considerations, this is what you need to do to choose the best payday loans for yourself:
Choose lenders wisely
The first step in avoiding ill-advised decision-making is doing a market survey. In order to narrow down a list of potential loan providers, you need to find lenders that can manage their own risks.
Payday lenders who are a part of other, larger institutions are more capable of controlling their risks, since these institutions diversify by offering different kinds of loans. On the other hand, small companies who cannot manage their risks properly compensate their losses by charging extremely high interest.
Look for legitimate payday loan companies
Before you draw a loan, make sure that the lender has fulfilled the basic state requirements for licensing and is following the appropriate laws, rules, and regulations for payday lending.
Once you narrow down list of potential lenders, you need to compare differing terms and conditions offered by each lender.
The best lenders, from a borrower’s perspective, are those that are honest and upfront with their customers. They clearly lay down the terms and conditions for their customers and help them understand the requirements of the loan.
You must also calculate what it would cost you to take out the loan. Use simple debt calculators. Enter the amount of loan you need to borrow plus the additional interest rate and you will have an estimate.
Also compare the loan fees offered by different companies and see what works best for you. Look out for hidden costs and include those in your estimates as well.
Choose companies that offer good customer services
The best payday loan lenders may charge slightly more than their competitors but offer invaluable support to their customers. Make sure your lender always assists you with your queries. Consider how fast you can get funded in cases of emergency.
It is also critically important that your loan provider company has privacy and confidentiality policies in place to protect your personal information.