Many of us want to know how to get a payday loan wisely without falling into a debt trap. Dwyane Smith from Detroit, Ohio, asked us a similar question:
“The other day, two tires in my car busted and I did not have enough money to replace them. One of my friends suggested opting for a payday loan as they can be availed quickly. However, I was afraid as I had heard horror stories about payday loans being debt traps. What should I do?”
Well, one of the first things that people need to know is that payday loans mostly work just like other loans with some minor differences. As is the case with other loans, if you do not repay on time penalty charges and other fees are applicable on payday loans as well.
The advantage of payday loans, unlike other loans, is the fact that they can get approved quickly and with very few eligibility criteria. Thus, they are great during emergencies like the one Dwyane had with 2 busted tires. However, we have to learn to efficiently manage the repayment of payday loans to avoid falling into a debt trap.
In this example, Dwyane can go for a $300 payday loan. He can then use that money to change the tires and go about his usual work. The loan money should not be used for any purpose other than what it was intended for, i.e., changing the tires.
After receiving the paycheck, repay the payday loan along with the interest mentioned in the loan agreement. Usually, a $300 payday loan will incur an interest rate of 20 percent with 15 to 30 dollars in fees. Thus, Dwyane will have to repay $390 to the payday loan lender on the payday.
The 90 extra dollars is something that no one would be averse to paying considering they were able to get the loan at a short notice during an emergency. The loan would have helped Dwyane in getting his car up and running once again, thereby allowing him to get to work and not skip it.
There are certain things that we have to remember and follow when taking out a $300 payday loan. Adhering to the tips mentioned below can help avoid falling into a debt cycle.
- Do not borrow more money than what is needed to resolve an emergency situation. Thus, fixing the two busted tires require $300. Hence, borrow only a $300 payday loan and not more than it.
- Do not borrow payday loans for non-emergency purposes such as adding accessories to cars, etc. Go for it only when you urgently need the money for essentials and use the loan only for that purpose.
- Fees and interest charges may be added to a payday loan on a weekly or fortnightly basis as mentioned in the contract. Hence, repay the loan as soon as you get the paycheck so as to avoid the additional interest charges, penalties, and fees, etc.