Payday Loan Mistakes

Taking out a payday loan can be a routine experience if done correctly. We have outlined the 3 most common mistakes borrowers make when taking out a payday loan:

1. Pay back your loan

The biggest mistake a borrower can make is to not repay the loan on time. People get caught up in the cycle of taking out one payday loan after another to cover their previous loans, in other words, they are simply rolling over their loan for another period. The interest accumulates rapidly, and people are left with huge money losses due to not paying their original loan on time. In fact, a recent study found that borrowers, on average, roll over their payday loan more than 13 times. The interest expenses resulting from these roll-overs are massive; much more than the original loan amount!

Jean Ann Fox, director of consumer protection with the Consumer Federation of America, had this to say: "People think, 'surely by my next payday I will have enough money to cover the loan,' but often that's not the case. You pay the finance charge and roll the principal amount over and over. They end up being debt traps."

2. Do not become dependent on Payday Loans

Many people will make the mistake on counting on payday loans and getting caught up in a vicious cycle of taking out one loan after another. What is important to realize here is that payday loans are not a long term money solutions. Sure they can be very helpful when you are caught in a financial jam and need some quick help, but they are not a long term solution. A payday loan is simply a short term fix, and should be treated as such.

3. Be sure you know the details of your loan

Lenders vary in their payday loan policies, so be sure to read the fine print before finalizing a transaction. At one lender you may pay 10 dollars for a two week $100 cash advance, while at another you may pay 20 dollars for the same loan. Also be sure to read up on the prepayment penalties. Some lenders will allow you to pay off your loan early and avoid some of the interest costs associated with it, while others will penalize you for doing so.

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