Payday loans are short-term loans that help you get through an emergency financial requirement. They ensure that you remain cash rich even in the event of an unexpected occurrence or expenditure. According to the Consumer Federation of America, payday loan agreements are permissible in 41 states. Although there are several disadvantages associated with taking payday loans, several individuals resort to it in times of need. Before you take a payday loan, exercise caution and keep the following aspects in mind.

Why do you need a payday loan?

Payday loans come with exorbitant interest rates. There have been instances when borrowers have paid up to 400% interest on a two-week payday loan amounting to $100. Such high-interest rates can inevitably put the borrowers in the trap of repeated borrowing. If you are taking payday loans repeatedly, to take cover from the reduced cash flow, then there are high chances that you will incur consumer debts. On the other hand, if you are taking a payday loan cash advance for a one-off expenditure, you will not get yourself into more financial trouble.

Before taking a payday loan, determine what you need it for. Do you need it to for a one-off purchase, an unexpected expenditure or for gaining short-term relief from a financial crisis? Or do you need them for settling monthly bills and covering living expenses? There is a high risk of defaulting and incurring bad debts if you choose to take payday loans for the latter purpose.

Can you afford the interest rates levied on payday loans?

Several payday lenders create traps by charging extortionate interest rates. Although, several states have introduced a cap on the loan amounts and the amount repayable, there are no specific guidelines regulating payday loans. As a result, the interest rates can fluctuate inconsistently. It is therefore pertinent that you give special attention to the loan amount and the amount that is to be repaid before signing the loan agreement.