Everyone can live a complicated financial situation. If you’re having trouble making ends meet, you’ve probably considered ways to get by. Have you thought about borrowing on your salary?
Do you believe that payday loans can help you get out of debt? Before you use it, here’s what you need to know.
What is a payday loan?
A payday loan is an amount of money that a private company agrees to lend you for a short time, until your next payday. In general, companies grant loans that vary between 30 and 50% of your net salary. To repay the lender, you must:
- Give him a post-dated check that covers the loan amount as well as any inherent costs or;
- Give him permission to withdraw this amount from your bank account as soon as you receive your pay.
Although a payday loan can be attractive, you should know that this form of borrowing is very expensive. Can payday loans help you out of debt? Nothing is less sure. In fact, there is even a risk of further debt if you can not repay the amount borrowed by the due date. Then, even if you manage to repay your loan, you may not have enough money to pay until your next payday … which puts you at risk of having to borrow again.
Do not sign without reading the contract
A payday loan should be considered a last resort. Never sign the contract without having read it completely. The fees that may be required are numerous:
- File opening fees;
- Administrative costs;
- Interest charges;
- Late fee;
- And more.
The fees charged can be so large that the total cost of your loan will be the equivalent of a loan made at a staggering interest rate. According to the Financial Consumer Agency of Canada, a payday loan can be equivalent to borrowing at an interest rate of around 450%, 650%, or even more in some cases! Before signing, make sure you know the total amount you will pay and ask for a copy of the contract.
Other solutions to eliminate your debts
Before thinking that only payday loans can help you get out of debt, have you considered other solutions? Here are some that will cost you a lot less:
- Overdraft protection applied to your bank account;
- A personal line of credit;
- A cash advance on the credit card.
Finally, here is the best solution: if your money problems are recurring, talk to a financial advisor.