One of the most difficult parts of an individual’s life is to make sure that he has enough cash flow to be able to keep his daily routine going smoothly. This includes housing, utility bills, food and clothing expenses and health and education and commuting expenses if one keeps it minimalistic and basic. Even if one is keen on keeping the lifestyle at the very basic, which is difficult in the current era of media, information and technological competitiveness, one needs a steady stream of finances to be able to meet daily expenses. Unfortunately, given the principles of capitalism that are followed primarily across the globe, most people are not able to generate enough income that can suffice the funds. This has created a huge market for credit facilities and financial products and services such as credit cards and loan facilities that aim to provide financial facilitation.
Although credit and financial institutions aim to assist individuals facing cash flow issues, however, these credit facilities come with financial costs. Moreover, the great economic crunch of 2008-2008 that saw the downfall of many financial institutions such as Lehman Brothers and Citi Bank, financial institutions today have become very stringent when providing individuals with loan and credit facilities. Most financial institutions today are not comfortable in providing loans and credit facilities to small businesses and individuals with weak financial profiles, which makes it difficult for many people to manage their cash flows.
The highly volatile economic circumstances around the world and their consequences on the financial sector paved way for new innovative products being introduced in the market. Some of the most hyped financial products are payday loans. Imagine you need to pay your utility bills or your child’s tuition fee and you require a $400 loan but no bank is willing to grant you a short-term small loan because your credit ratings have been weak in the past. The quickest way to generate liquid cash in such situations can be seeking a payday loan.
Payday loans are short-term loans that need to be repaid within the span of not more than 4 weeks. The idea is to loan a required amount of money and repay it as soon as you get your next paycheck. Generally, payday loans are not granted for amounts exceeding $3000. On paper, payday loans sound very tempting and easy to acquire which is why many people are tempted to jump towards them. However, payday loans can be extremely dangerous for anyone who does not have the understanding of how they work and can make one stuck in a long-term debt cycle. Therefore, if you are someone who is planning to seek a payday loan for some quick liquidity, here are a few things you should know before you go ahead.
The Costs Involved
In theory, payday loans are meant to provide you with a quick liquidity. However, the question is why would a lender want to loan money to you when no major financial institution is doing so? This is where you need to be tactful as a loan applicant. Lenders who offer such loans are aware that you are seeking such a facility because you desperately need money and this where they try to exploit you to the best of their advantage. The APR used for payday loans are in three digits or four digits. This means that if you are seeking a $400 payday loan you might be required to pay $1000 within the next three or four weeks. This means that $1000 from your next paycheck will go straight to your loan repayment and there is a chance that you will find yourself stuck in a financial crisis yet again. As a result, chances are that you will be seeking another payday loan to fund your consequent crisis and the cycle will continue which will, in turn, benefit your lender in the form of high finance charges.
Consider Alternate Means of Financing
It is true that most major financial institutions might be uninterested in lending you the money. However, it does not mean that you jump the payday loan bandwagon just because you are desperate and you need loans. There are still alternate means of financing available that can save you from the harsh consequences of vicious debt cycles. If you are looking for some liquidity in your cash stream, see if you have any assets that you can sell off to generate finances. It is a better idea to sell off your gold jewelry or even your car and rely on public transport than going for a payday loan. You might be stripped off an asset, but you will not have to pay any further financial costs in this case. If selling assets and wealth cannot be an option see if you have any friends or family that might be willing to lend you money on easy terms. Often family members are willing to help with even interest-free loans.
Improve Your Credit History
The kind of loan facility you are eligible to avail largely depends on your credit history. If you have a weak credit profile, lenders will either refuse to lend you or will set high financial costs and difficult lending terms since their risks will be high. However, if your credit ratings are stronger, lenders will be willing to lend you money on much easier terms. If you can work to improve your credit history, you can use regular banking channels to get personal loans at much lower interest rates rather than going to payday loan lenders. You can improve your credit profile by repaying your credit card bills timely and showing minimal reliance on credit facilities.
Plan Your Payday Loans Tactfully
If you feel that a payday loan is the only solution to your problem then it is important to work it out smartly. Thoroughly research your lenders and try to bargain the best terms and conditions and the lowest possible interest rates that you can get. Be diligent in your calculations and only ask for the money that you can pay off comfortably alongside the financial costs without needing additional credit facility. Loaning out extra cash would mean that you will have to pay extra financial charges which would be an additional burden on your cash flow.