3 Mistakes To Avoid When Applying For A Payday Loan

Posted on: 21 June 2022

A payday loan is an unsecured loan offered to salaried employees, allowing you to borrow cash against your next paycheck. Thus, the lender deducts the amount you borrow plus any fees from your next paycheck. Payday loans are an excellent option for getting quick cash. However, you can only borrow a fraction of your salary for a payday loan. You can't borrow an amount equal to or exceeding your paycheck. Borrowers often make several regrettable mistakes when applying for a payday loan. Thus, if you plan to apply for a payday loan, here are three common mistakes you should avoid.  

1. Failing to Research Different Lenders 

When applying for a payday loan, most people go to the financial institutions that receive their paychecks, such as the bank they use. However, other lenders are willing to provide you with a payday loan even if you don't bank with them. The importance of researching different payday loan lenders is to find the best rates and terms. By analyzing different lenders, you might find that other lenders have better payday loan rates than your bank of choice. For instance, small lenders always look for ways to compete with banks. As a result, they often offer better payday loan rates and terms than banks. Hence, before applying for a payday loan, research several lenders to determine which one gives you the best interest rates and terms.   

2. Borrowing More Than You Can Comfortably Repay   

Though you can't borrow more than you earn as a payday loan, it is pretty easy to borrow more than you can comfortably repay. When borrowers take on a payday loan, they forget that a large amount of their next paycheck will go toward repaying the payday loan. Furthermore, they forget that they still need money for utilities after paying back the loan. If you borrow a large amount, you may not have enough money left from your paycheck after repaying the payday loan. Hence, you won't have sufficient funds to cater to your needs, such as rent and utilities. Before taking a payday loan, determine how much money you need to survive after the lender deducts the loan from your next paycheck. Ideally, borrow a small amount that enables you to have some money left after you repay the loan.   

3. Failing to Check for Hidden Fees   

When you apply for a payday loan, you need to understand the terms and conditions. The fees are one of the critical factors you should review when taking a payday loan. Failing to ask about all the charges could lead to you repaying a higher amount than you had intended due to hidden fees. Hidden fees are levies charged on your loan, but they are not included in the contract. Thus, when reviewing a payday loan contract, ensure the lender includes and explains the following fees. 

  • Initiation fees charged for processing the loan
  • Service fees
  • Interest fees charged on the principle
  • VAT fees levied by the government

Contact a payday loan service to learn more.