When your bills are piling up, do you turn to short-term borrowings just to keep the pressure off your shoulders? While borrowing isn’t bad, you must realise that it has consequences. Many first-time borrowers are too concerned with satisfying the requirements of a short-term loan. While completing the requirements will up your chances of getting a loan, knowing the consequences is a necessity especially on your part. You don’t just jump into the water unprepared.
Here are points to remember before availing of a short-term facility like a payday loan:
Check your budget
Availing of payday loans are a fast and easy way to settle short-term debts but make sure you have future cash flows that will help you pay it off come maturity date. If you don’t have a steady source, you might have to turn to other funding sources to help you settle bills.
Understand the effect of Roll-overs
While you may roll over the principal loan, doing it over and over could put you in a more precarious situation. A payday loan is called such because it is supposed to be repaid come succeeding payday. A survey on payday loan repayments reveals that about one-third of borrowers tend to request for a rollover of the principal while merely paying the interest portion of the loan. You might end up not paying the principal for the longest time.
Review the APRs
In the UK, lenders who offer payday loans are required to issue a report about the Annual Percentage Rate. This info is critical as it gives borrowers a clear idea about the total amount of interest they are going to pay for one whole year and sometimes, it can be excessively high.
Even payday lenders agree that quoting an APR wards off potential borrowers because of the realization that the effective rate can be exorbitant. Some, prefer to quote “less than 1% per day” to make it more appealing.
Consider borrowing from family members
Want an interest-free short-term loan? The best people to approach is just a phone call away - mum and dad. Parents are often there to the rescue and it’s hard for them to refuse a child (including a fully grown one) who is temporarily cash-strapped. There is nothing wrong in asking help from family members. Of course, you really have to pay them back because the money they are lending you may have been put aside in preparation for retirement.
Know the consequences of non-payment
If you fail to pay any amount, this would mean penalties. Your original payday loan might balloon to twice or thrice the principal amount if you continue to incur penalties. There is also the problem of notifications. Lenders who are strict about late payments will call you many times in a day, demanding for immediate payment. Some will go to the extent of inquiring about your reasons for being delayed. Do not be surprised if you receive a series of calls while at work.
Borrowing short-term loans are not really a bane because there are many individuals, families, or business owners who have turned to borrowings during dire situations and many have been helped. However, take note of these points so you know what you are getting into.