It’s estimated that 12 million people take out payday loans each year — but not all of them benefit equally. Responsible usage of payday loans is essential to ensure that the borrowed money goes toward its intended purpose and doesn’t have any unintended negative consequences.
Recently had the chance to speak to Tracy Rawle, CEO of Check City, about what borrowers can do to ensure that they use payday loans and e-transfer loans responsibly. Here’s how you can make the most of this lending option.
1. Understand Borrowing Terms and Costs
“I think that it’s really important for the borrower to understand exactly what the terms are and don’t jump into it without reading the disclosures, asking all the questions they need to ask and making sure that they understand the terms and repayment obligations before jumping into it. And then, once they really understand it, then they can determine if that loan is best for them,” Rawle advises.
“I can’t state it strongly enough — that it’s important. Borrowers really need to review the disclosures and make sure especially that they understand the basic terms of the loan, the cost, the dates that payments are due and so forth.”
In addition to understanding the standard costs associated with your loan, you should also review the lender’s policy regarding late fees, early payment and other areas you might have questions or concerns about. This will help you avoid unpleasant surprises that you could have anticipated.
Understanding terms and costs can also help you better assess your own ability to repay the loan.
2. Only Use Payday Loans for Certain Situations
While payday loans can be taken out for any reason, responsible use of this type of loan entails only using them when absolutely necessary. “There are myriad situations when a payday loan can be very valuable. Some of these are for short-term needs. You may have an emergency medical need. You need to buy some medication. You may need to get your car fixed so you can get to work. You may need to make a rent payment, a mortgage payment and so forth,” Rawle explains.
“These loans can really help somebody avoid more costly alternatives, such as writing bad checks. That’s very expensive. I mean, a small payday loan could keep a borrower from writing two, three, four bad checks.”
Payday loans are not designed as a long-term financial strategy. Think of them as an emergency solution to take care of short-term needs.
3. Have Money in Your Account Before Your Repayment Date
Payday loan repayment is generally made either via an electronic withdrawal from your checking or savings account, or when the lender cashes in your post-dated check that you provided when you took out the loan. This is an area where some payday loan borrowers can get into trouble, as they don’t have sufficient funds in their bank account when the lender tries to process the loan repayment.
“More and more customers are opting for automated payments,” Rawle notes. “ACH payments just make it much easier. It saves them time and traveling expenses and so forth.”
Despite this ease of use, insufficient funds could cause your loan to default. Mark the payment date on your calendar and be proactive in making sure your account will have enough money to cover the repayment.
It’s also important to keep track of your own pay schedule, which generally lines up with your loan repayment date. Any changes or delays to your pay schedule should be communicated to the lender so they can adjust their withdrawal plan accordingly.
4. Make Debt Repayment Part of Your Budget
As part of the process of ensuring there is enough money in your bank account for the loan repayment, Rawle advises that households establish a strict budget that accounts for all debt repayments.
“A budget is very important. I think that if the borrower plans ahead and plans their spending based upon their payday loan obligation and their other obligations, they’re much more
likely to repay the loan on time. I think all of the benefits of budgeting in somebody’s life also help in taking care of obligations like a payday loan.”
In addition to looking for ways to cut unnecessary expenses, some individuals may benefit from seeking additional part-time work or freelancing to bring in extra income.
5. Loan Extensions
Depending upon the state law where a borrower lives, some lenders allow you to extend the loan due date. Borrowers should strive to avoid extending the loan too long whenever possible. Payday loans are best used to help with short-term needs and are not suited for long-term obligations.
Carefully evaluating your budget and your ability to repay the loan before you take it out will minimize the risk of taking out too big of a loan (or taking out an unnecessary loan) that leads to this form of recurring debt.
Be a Responsible Borrower
By following these principles, you can ensure that you use payday loans in a responsible manner that helps rather than hinders your financial progress. By practicing other wise financial habits, such as setting money aside in a savings account, you can put yourself on track to achieve greater financial freedom.
Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.
