Sometimes pay day doesn’t quite match up to when cash is needed. Enter pay day loans. Here’s how you can use them responsibly to work for you.
Pay day loans have been a lifesaver for many Australians since the economic crash of 2008. In March over 7000 Australians went bankrupt, and many in the nation are struggling to even meet their needs.
Have you ever been stuck in between paychecks with a bill collector crawling up your back? Do you feel like your pay day comes at the absolutely wrong time?
While a pay day loan isn’t a constant solution, when you are at your wit’s end with important bill payment, it might be a good short-term solution for you.
Loans are scary for anyone. Taking the wrong loan at the wrong time could land you in a world of hurt. This is why we’ve set out to compile a little bit of advice on how to make a pay day loan work for you.
1. Pay Day Loans: What are They For?
Have you been responsible with your money so far and found yourself at a dead end looking for a way out? This is a completely valid reason to take a loan.
But, you need to make sure you do have a valid reason for taking out that loan. Because if you are taking out loans unnecessarily, you will find yourself saddled with a loan you may not be able to pay back in the future.
Although pay day loans generally fall under $500, the interest rate alone might be detrimental. Interest rates on pay day loans can be as high as 400% in other countries, but in Australia, fortunately, we have laws that keep a lender from charging over 20% at the outset and more than 4% each month. We’ll later go over how much that would cost you in the long run, but, although our government protects you from greedy lenders, this is still not a number to take lightly.
Pay day loans are the lifesaver rings of the financial ship. And that’s exactly what they are for, emergencies.
For this reason, you should never borrow more than you need.
Many people in the world mask their lack of wealth by living above their means. So, you need to sit down and take stock of your finances before taking out a pay day loan.
Will you be able to pay it back? If the answer is “no,” then maybe you need to consider the alternatives.
2. Pay Day Loans: You Only Need One
As we pointed out above, $500 may seem like a small loan, but when combined with the interest rate, it is actually a large loan.
Some sleazy loan companies might try to get you to take out more than one pay day loan to satisfy more than one bill.
This is a tempting scheme, but those loan companies do not have your best interest at heart. They are only in it to make as much money off of you as they possibly can.
Again, if you need more than a $500 advance on your paycheck, then you might want to consider alternatives.
What kinds of alternatives are there?
One of the best pieces of advice I ever heard about investment was, go to your family and friends first. You might be surprised at the generosity of those you know.
The average Australian borrows $200 from friends and family every month. And this is not an unwise move.
Think about it. When you borrow from an institution or a loan company you have fees and interest rates.
Now, you may have a business savvy family member who might decide to charge you interest on their loan to you. But most family members probably wouldn’t even think to do such a thing to their nearest and dearest.
Also, have you tried negotiating with your bill collector or utility company? Sometimes, if you explain your situation, bill collectors will give you a grace period to pay them without penalty.
If you haven’t defaulted on their payments, then you may be in good graces with them.
If you are renting and you have been paying rent early each month, use this to your advantage when talking to your landlord.
Also, do you have anything laying around the house you could sell? Often times what you think might not be of interest to another person is really gold. eBay and Amazon are excellent places to make a quick dollar.
3. Pay Day Loans: Pay it Back ASAP!
Now it’s time to talk about that pesky thing we call interest rates.
Have you ever accidentally run up your credit card and found it much harder to pay back over time than you thought?
The average credit card interest rate is only about %16.9 in Australia. That’s much, much lower than the initial fee on a pay day loan.
If you were having a hard time paying off your credit card, you are going to have a hard time paying off your loan.
Using a handy loan calculator, we can see that at a 20% fee and a 4% per month interest rate, in a year you would pay over $800.
If seeing that number isn’t incentive enough to pay off your loan as soon as possible, I don’t know what is.
And remember, this is only to get you through until your paycheck comes in later that month. If you can’t pay it that month, be sure you are able to pay it within a month or two.
Most loan businesses will work with your pay structure. When are you getting paid next? Most likely the loan business will take that or the next paycheck date to give you an estimate on when they expect you to pay back the loan.
You will most likely not be taking a whole year to pay back your pay day loan. And if you are smart with your money, you will have it paid off in two pay cycles.
Conclusion: Make the Right Decision
Now that you’ve considered all the options, looked at your finances, studied up on the terms and conditions, you are ready to make a decision.
Again, stop. Take a moment to evaluate everything.
Then come on over to Cigno Loans and apply today!
Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.