The payday loan is usually the highest-interest type of credit out there. You’re going to, in many cases, pay several hundred percent Annual Percentage Rate in interest on this type of loan. Yes, a payday loan is a legal and legitimate type of loan, but it’s certainly not the first place you turn to for cash.
If you do find yourself with a payday loan, it’s important to pay it off fast and not renew it. When you renew a payday loan, you can compound your financial problems. You want to get it paid off and leave it alone, and avoid taking another one out in the future.
Still, there are some good ways and bad ways to pay off your payday loan. Here are a few things you should not do to pay off your loan:
Take out another payday loan from another lender. That should go without saying, but people still do it. Taking an additional payday loan is bad enough, but if you go to another lender you can actually compound your financial and credit troubles. You’re trading debt between debtors and you’re losing a significant amount of money each and every time you do so.
Take out a larger payday loan from the same lender. In some cases, you may be strapped for cash and need to cover not only the principal on your payday loan, but the fees as well. For example, you might have a payday loan for $200 that cost you $30 in fees. You then take out a loan of $230 with fees of $35 to pay off the original loan. In two weeks, you now owe $265 and have to take even a bigger loan. This is hot the direction you want to go.
Anything illegal. It’s not like you’re trying to get together money to pay off the mob. Payday lenders have to follow the same laws as everyone else. They’re not going to send someone to break your legs, so there’s no need to knock over a gas station or steal from your employer just to save interest charges on a payday loan.