Payday loans – How Can They Possibly Be a Good Idea?

There are many different forms of credit available to those who need a loan. For those who have bad credit or no credit, a payday loan may be a useful financial tool. What are some issues that you need to consider before applying for a payday loan?

Native American Companies Could Scam You

If you take a payday loan from a Native American lender, they are not obligated to operate under United States usury laws. This means that you could be forced to pay an interest rate of 100 percent or more. Consumers also lack protection against predatory late fees that borrowers have when they work with lenders based in the United States.

States May Limit How Much You Can Borrow

Payday loans are great when you need $100 to pay an electric bill or $200 to pay your car note. However, most states will limit your ability to borrow to $1,000 at any given time. You may also be limited to the number of loans that you can take out at any given time. This means that you may not be able to use a payday loan to pay your bills even if you wanted to and could find a lender willing to make a loan.

No Credit Check Is Required

One good thing about a payday loan is that no credit check is required to get the loan. In some cases, you may be able to get a loan without showing proof of employment. While this could leave you in a sticky situation if you cannot repay the loan when it comes due, at least you give yourself more time to work things out if you are in a desperate financial situation.

Your Credit Score Could Improve

If your lender reports your positive payment history to the credit agencies, you can improve your credit score enough to qualify for a traditional loan in the future. The next time that you need a loan, you could apply for a low-interest credit card or a home equity loan instead of having to rely on a payday loan that could see you pay back $200 when you only borrowed $100.

A payday loan is not something that you should use on a whim. You have to know what you are getting into before you apply for the loan. While the money is easy to get, it can be costly to repay. If you can’t repay the loan on time, you could be trapped in a vicious debt cycle that takes years to get out of.

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