5 Questions to Ask Before Taking Out a Payday Loan

A payday loan is a small, short-term loan, usually between $100 and $500, extended to a borrower until his or her next payday. It can be called a cash advance loan, a check advance loan, or even a deferred-deposit check loan, but regardless of what they’re called, they generally are all the same. Payday loans may be helpful when you are having temporary cash flow problems or are facing a financial emergency. Before considering such a loan, it’s important to ask yourself a few questions first:

1. Are there any other options?

In many cases, you can find an alternative to getting a payday loan. Before making a decision, brainstorm for other possible solutions, such as using a credit card or selling an item or two from your home. You may just find a better way to accomplish your goal.

2. Are you prepared for the fees and interest that you will be charged?

The word “interest” is generally not used in payday lending agreements, rather a fee is charged for the service. Fees are typically between $15 and $25 per every $100 borrowed. That adds up to an annual percentage rate equivalent of approximately 391% to 650% interest! For that much, make sure that your purchase is going to be worth it.

3. Is the amount of money you are borrowing reasonable?

Because of the high cost, it’s important that you are sure you will be able to pay back the loan quickly. If not, the “roll over” charges for extending the loan will add up fast and could easily even double the amount of your loan. Some people who needed immediate cash have ended up taking payday loans from other lenders to pay off previous lenders. You can make sure that this doesn’t happen to you by keeping your loan as small as possible.

4. Is the establishment you’re taking your loan from a reputable company?

Your security is important. As with any loan, make sure you do some research before signing on the dotted line. Start with their certification: all payday loan companies must have a license from the state they are based in and some states don’t even allow payday loans. Secondly, make sure that the company has been around for at least 2 years or more. In that time, they will have built up a reputation as a reliable service. Thirdly, check with the better business bureau to see if there are any complaints against the lender. Don’t even consider one that has had a history of problems.

5. Do you have peace of mind about getting the loan?

Taking out a payday loan can easily turn a temporary financial difficulty into a chronic problem. If you have the slightest doubts about the answers to any of these questions, stop: don't do it. A payday loan may not be the right choice for your situation and could make things worse.

This article can also be found at iQualifyNow.com.