Even though a payday loan is a small-dollar short-term financial agreement, it varies a lot in terms of repayment timelines, interest, and fees, among other factors.
So, it is crucial to carefully review available options and know what you are throwing yourself into before you agree to sign the agreement.
The world of payday lenders can be overwhelming, especially for first-time borrowers, so it is best to start with the basics. Understanding what you will be agreeing to when you sign a payday loan is the essential step in getting a good and cost-effective deal. Below, you will find a checklist of things to take into consideration while you are shopping for a payday offer.
Start With the Basics
Payday loans come in different forms and sizes, but they all have three main building blocks: repayment timeline, loan cost, and APR https://www.instantcashtime.com/s21-victims/ . The repayment timeline will, of course, be defined by your given ability to repay (typically from two to four weeks), while the loan cost is defined by your state restrictions and the APR is generally determined by your credit report.
Therefore, while you are searching for a good payday offer, compare what type of combination of these three criteria makes the most sense for your current position.
Use a Payday Loan Checklist
It is also vital not to miss a thing when it comes to comparison shopping. Follow this essential checklist that will help you compare one payday loan to another and agree on the terms and conditions that sound the most appealing to you.
Create a Realistic Budget
Work out on determining what you can afford in terms of monthly installments. Try to keep in mind the potential costs of the loan, too, such as fees, penalties, and maintenance. Next, define the amount of the payday loan you are planning to apply for or the value of the interest rate you plan to accept.
Contact Multiple Providers
As we have said earlier, rates and conditions vary considerably from one lending provider to another. That’s why it would be a smart idea to consider multiple lenders, including your local credit union or bank. Online payday providers can also offer a source of financing, so if you search for the best loan offer before heading out to the physical building, you are in a better position to negotiate.
Know the Loan’s Total Cost
By knowing a loan’s amount, interest rate, and repayment timeline, you can easily calculate how much the loan will cost you. Let’s say you want to get out a payday loan of $500. If you are searching for a 2-week period with a 200% APR and comparing it to a 4-week period with a 130% APR, which one is better?
In fact, the first offer will come with a $38.36 monthly installment and cost you $538.36 in principal. The second offer may sound better as it has a lower APR, but the loan term is longer, which makes you pay more in total https://www.instantcashtime.com/getting-to-know-brendan-behan-pub-better/. This way, you will pay $49.86 in finance charge over the four-week period, bringing the overall amount to $549.86. If a longer term and lower monthly installments outweigh the total costs, then go with the second offer.
Ask About a Prepayment Penalty
At some point, you might start to consider paying your payday loan off early in order to save money in interest and stop having the automatic deposit transfers from your account. It is also important to think of it in advance and check the fine print before getting any type of loan. Otherwise, you may be hit with early repayment penalties that will make it not effective doing so.
Check All at Once or None at All
Last but not least, if you are going to take your time in comparison shopping for payday loans, your credit history may suffer. Some providers will review your credit, and the latter will tend to dip temporarily – making it harder to qualify for a loan with better terms if you decide to do so. This typically is a sign to lending providers that you need money desperately, even if that is not true.
Because of it, we usually recommend getting pre-approved for selected payday loans. This means that you have set your limits and found out the loan costs before signing on the dotted line. Getting preapproved doesn’t affect your credit, but it does give you an idea of what you can afford as a borrower.