Julia asked us the following question:
“I’m about to borrow a 400 dollar payday loan. It may seem small, but to me it’s still a loan that I need to use properly. What are the things I should think over before getting this loan?” – Julia
You’re spot on. Borrowers should always assess their situation before getting a loan whether it’s five thousand or a three hundred bucks. Before taking out a loan, no matter how small, consider these three simple factors.
A direct lender should be licensed in the state where you’re taking out the loan, not in another state, not in the UK or Canada, but IN your state. Even if the loan company is duly registered in the state where it’s based, it may not be licensed to offer loans in your state. Keep in mind that regulations on personal loans including 400 dollar payday loan differ per state. Some states like New York and West Virginia even prohibit this type of loan, while other states like Oregon and Texas have more open regulations. Here’s a quick list of state regulations published by the National Conference of State Legislatures. You should also check with your State Department Financial of Financial Institutions if the lender is duly registered. Remember, a licensed direct lender will likely offer loan packages that are governed by interest caps and fee limits. To make your research for legitimate lenders easier, you can opt to use loan referral sites, which collate the best terms in your area.
It’s something to ponder about—if you’re borrowing three hundred bucks today, do you have around 360 dollars to pay it back on the next payday? Not the least paying for hidden fees like processing and re-processing fees. If not, it only means one thing: you’re extending the loan or defaulting on it. Both scenarios can put you in a debt spiral resulting in more fees against your paycheck. And the probability of a debt trap increases as the loan amount increases even for a few hundreds like a 500 loan. While it’s fast and easy to get loans today, paying them back is, sadly, not. These loans are useful to pay for emergencies and for people with enough income to pay them back in about two weeks. Make sure to plan for a quick exit strategy, too, even for small loans. Likewise, if your regular income can’t make both ends meet, this loan may not be for you unless you expect a higher income source in a few weeks.
Even if you’re borrowing a small amount the interest and fees are not small. Depending on where you live, the interest alone ranges from 15% to 25%. Add to that the various fees that a lender can charge, plus penalties should you default, that 400 dollars can easily balloon to a thousand bucks if you’re not careful. It’s not to say that a 400 dollar payday loan is not for you; just make sure the situation is worth it for those extra charges. Also, be wary of extending the payment for months. A US consumer group explains why you’ll be paying as much as 390% in annual percentage rate if you pay this loan for a year.
Even people with bad credit can now secure an approval for a 400 dollar payday loan. It’s small and easy to manage, but like other loans, use it wisely to avoid complications on your personal finance.
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