Payday loans online can work great if they are used to take care of a small financial crunch. Trying to use these short-term loans to take care of existing debt will only sink you further in debt. Once your debt to income ratio has been overloaded it will be extremely difficult to access a large chunk of income in order to pay off your payday loan in full and on time.
Let’s take a look at debt to income ratio. It is basically a comparison of how much money you take home in income versus the demand from your creditors. When the two figures are similar to each other, your ratio is high. When your take home pay is $1500 and your minimum payments to creditors are $1300, your debt to income ratio is extremely high jeopardizing your monthly budget as well as your credit score. Any type of unexpected bill or emergency cost can create quite a financial stir with budgeted costs. Payday loans online are short-term loans which can bring quick money to solve a sudden demand for cash, but unless there is hope for a full payoff, it could possibly do more harm than good.
When are payday loans online a bad option?
If you do not have money to pay your loan back on time, you are asking for trouble. There is a fee attached to your loan payoff which is scheduled to be electronically debited from your bank account. This means you will be paying off the entire loan plus the added fee when your next paycheck gets directly debited to your account. If you need to extend the loan out to the next paycheck, you will be charged a high interest rate. The balance will grow at a much faster rate than a typical loan, and trouble arises for those who keep the full balance out for a long period of time. This typically happens when a person takes out the loan without having the cash available to cover the costs once payday comes along.
Negative comments arise towards the payday loans online industry when borrowers fail to pay back their loans. All the high interest rates accumulate to be a triple digit annual percentage rate. These are short-term loans which are given with the idea that they will be repaid with your next paycheck. There needs to be some responsibility taken on the borrower’s end. It is not news, and the majority of the lenders will be up front and answer any question when it comes to the loan process.
Once you are in debt and the majority, if not all, of your income is spoken for, then payday loans online is not an answer. These loans are small and are not cost effective because of the high interest rates. Getting into a cycle of paying off one loan by applying for a new one gets you nowhere but paying out extra money towards fees. The interest rates will put you in default quite quickly.
Understand your finances and what your debt to income ratio is before you take out any kind of loan. Creditors will want to lend to those who have room for additional debt. Since Spotya! payday loans online will not check your credit score for this information, it is up to the borrower to make the best choice for their situation.
I am a Blogger, Web Content Writer, Teacher, Mom. A woman of many hats. As an elementary teacher, I had always encouraged my students to write more. I find myself falling back on my own teaching techniques to share what I know about building and rebuilding personal finances.