Payday loans, also known as a pay advance loan, has established a good niche for low income people with poor credit. These days, just about everyone has poor credit, so even middle class people are flocking to this versatile and easy way to get a short-term loan. Unfortunately, some people don’t understand the concept of the short-term loan very well, and assume you can extend the repayment forever, like you might a credit card, or take out multiple loans at one time. This can be a very dangerous practice that can quickly add lots of money to the debt you owe.
Small Short Term Loans
Payday loans are set up to only provide a small amount of cash for a very specific reason – to keep your debt manageable. They are not meant to be a revolving credit line, they are meant to offer emergency cash for a very short time period, from 1 week to a 1 month, depending on when your next paycheck cycle hits. You can get a payday loan and roll it over instead of paying it when it comes due, but this is when the interest rate starts to increase the debt owed substantially. There is nothing to keep you rolling over the debt once more, but again, it will make it very difficult to pay back the original amount, plus the new balance from rolling it over. The best way to use a payday loan is to take it out for a specific small period and be sure you can pay it back the first time it comes due.
Too Many Loans
There are limits from lender to lender to keep you from taking too many payday loans out in a year. However, some people decide to go to multiple lenders at the same time to get payday loans thinking they will be able to pay them all back on the next paycheck cycle. First of all, the lender themselves tell you it’s not a good idea to take out too many loans, and secondly, if you are taking out one cash advance, for the next paycheck cycle odds are that’s all you’ll be able to pay back when it comes due. If you have to end up rolling any of the loans over you can get caught in a spiral of debt from having too much debt to service.