Payday Loans: The Top 4 Techniques for Playing It Safe

[Dec 17, 2008.]

 

With the bad rap that payday loans have gotten over the past few years, you might get the impression that they’re to be avoided altogether. Nothing could be further from the truth. The principles regarding payday loans are very similar to the ones that govern any type of lending agreement. Find a reputable lender. Know the terms inside and out. Use acquired funds wisely. And have a solid plan for repayment.

1. Find a Reputable Lender. The payday loans industry is far from decline. According to the Metropolitan Policy Program at Brookings: “The $100 billion size of the high-cost non-bank basic financial services industry, including check cashers, payday lenders, and pawnshops, points to the high demand for basic financial services.” So taking advantage of this last-minute lending opportunity is to find a credible organization. The Federal Deposit Insurance Corporation (FDIC) Web site, a government-backed information source, is a good place to start your search.

2. Know the Terms. You probably will not be surprised at the number of contract pages you must sign when you visit payday lenders. And each page is filled with regulations that you must understand fully in order to stay on the right side of the equation. But safeguards do exist. For example, the Chicago Tribune explains how the 2005 Illinois payday loan law capped rates on short-term loans taken out for up to 120 days with a 403 percent annual interest. Additional protections aimed at keeping borrowers from falling into debt traps, such as limiting the number of loans and allowing borrowers to work out a repayment plan.

3. Use Acquired Funds Wisely. Regarding payday loans, having a spending strategy will keep you from becoming frivolous with newfound money. KFOR-TV revealed a study that showed most borrowers used their loans for living expenses. This begins an endless cycle of debt that is difficult to break. Payday lenders are most helpful when the money the loan is used for unexpected, one-off expenses not related to routine purchases--medical emergencies, bond and bail, and similar situations.

4. Have a Solid Plan for Repayment. This is perhaps the most important step in the process. Payday loans are meant to tide you over until your next paycheck. If there’s no paycheck coming, the process becomes a disconnect. Responsible lenders will typically require come proof of coverage--a car, a house lien, or similar asset. They’ll also require proof of income, such as a few months of pay stubs. Beware a lender that gives money freely with no guarantee that you can repay in a timely manner.

Source(s)
Chicago Tribune
Metropolitan Policy Program
WorldNow and KFOR-TV

 

About Author:

Kelly Richardson is a freelance writer, marcomm consultant and digital entrepreneur. He’s written content for Fortune 500s Google, Yahoo!, Microsoft and Wells Fargo. Find out more about him at kellyrichardsoncopywriting.com.