Payday loans are typically small, short-term loans often due on your next payday – anywhere from two to four weeks. You can choose the amount you want to borrow and fill out an application, after which the borrowers will determine what interest rate to charge you if they approve you for a loan. Most lenders offer loans for anywhere between $100 to $1500, but the amounts vary.
Although attaining a payday loan is relatively simple, learning how to choose the right lender is important. Choosing an unlicensed lender or one that charges higher rates than others can result in financial constraints. Consider the following tips to determine which payday lender is right for you.
Determine How Much You Need
The amount of money you need can narrow down your lender selection process. When you need a small amount that you know you can pay back quickly, you may not need to stress about the interest rates. However, if you need a large amount, it’s important to determine how much you need before looking for a lender. The amount may help you narrow your options and streamline the borrowing process.
Taking only what you need is important to avoid raising high fees. So, carefully consider your required amount and then start looking into lenders.
Confirm That They’re Licensed
Payday lenders must have a license to issue payday loans in your location. Borrowing money from an unlicensed lender can be incredibly risky. An unlicensed lender may be a criminal enterprise, as they are operating outside the law by not having a license. Your annual percentage rate (APR) may also be higher, and failure to pay may result in illegal collection behavior. In addition, your options to exercise your rights may be limited as the lender may be a fraud.
According to the Consumer Financial Protection Bureau, you can confirm if a payday lender is licensed to do business in your area by verifying the information with your state regulator or attorney general. Consumer protection organizations in Canada or other countries may also offer similar services.
Compare the Cost of Borrowing
Lenders typically charge a percentage of interest, a recurring fee you must pay until you repay the principal amount you borrowed. The rate is usually calculated on an annual percentage rate basis (APR), the same method used for credit cards, mortgages, etc.
Comparing the cost of borrowing among lenders is one of the helpful tips for getting loans from a payday lender. After narrowing down your lender options, compare the cost of borrowing among the different companies. Their interest rates, fees, and penalties will likely vary. When you find a company that offers better terms, choose that one to reduce your cost of borrowing. A reputable company will ensure what you see is what you get by disclosing all the fees upfront and eliminating any surprises.
Learn About Fees & Penalties
You can face significant consequences for not paying back a loan within the agreed-upon timeframe. You may have to deal with increased fees and penalties if your payment bounces. Look into the regulations for payday lenders based on where you live, as this can often protect you from unexpected fees. For example, in Canada, the maximum cost of borrowing for a $100 payday loan, the cooling off period to cancel the payday loan, and the maximum penalty for a returned cheque or pre-authorized debit rates vary among different provinces.
After learning about the regulations in your location, confirm the fees and penalties with your lender of choice. This will clarify doubts and allow you to borrow money without stress.