If you find yourself in a financial bind, a payday loan might just be the lifebuoy you need!
A payday loan is a type of short-term loan that is due on the borrower's next payday. The loan is usually for a small amount and is intended to help cover unexpected expenses or provide extra cash until the next paycheque arrives.
How do payday loans work?
Payday loans in Nigeria can be gotten from traditional and digital banks or from online lending apps.
In most cases, payday loans are usually repaid in a single payment on the borrower’s next payday, or when income is received from another source such as a pension.
The due date is typically two to four weeks from the date the loan was made. The specific due date is set in the payday loan agreement.
The loan is usually made available to the borrower by electronic deposits.
In like manner, repayment is done by automatic deduction on the due date.
Payday loans are regarded as unsecured loans meaning the borrower doesn’t need to provide a collateral to obtain one. The result is that payday loans attract high interest rates.
Ways a Payday Loan Can Get You Out of financial trouble
Payday loans in Nigeria can be used to help pay for a huge variety of costs including bills, household appliances, repairs, and almost any unexpected cost you can think of.
Here are some of the key advantages of payday loans:
1. Ease of access
If you find yourself in financial trouble and need to get out quickly, a payday loan is usually the best option, especially for salary earners.
Its most significant advantage for many borrowers is that payday loans are convenient and quick to access.
Unlike other lending products, you can apply online in just a few minutes, and money could reach your bank account on the same day.
2. Fewer requirements
Many borrowers are attracted to payday loans because the acceptance criteria are often less strict than for other categories of lending.
Borrowers with poor credit histories and lower incomes are often able to get approved by payday lenders despite the fact that they don't meet some eligibility criteria of banks and other financial t institutions.
3. Increased chances of approval
As a borrower with a poor credit score, your payday loan can still get approved.
While it is important to ensure you don’t fall into a borrowing cycle, payday lenders are more likely to approve loans with bad credit than some traditional lenders.
This is because they are less interested in whether a borrower has a chequered financial past, and more concerned about whether the loan is affordable to them.
Downsides of payday loans
Payday loans may be convenient and could easily get you out of trouble, but they are not without disadvantages.
Other than the fact that payday loans are not suitable for all borrowers, they could make it harder to improve your credit score.
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In addition, other disadvantages of payday loans may include.
1. They are expensive
Because they are unsecured loans, meaning they do not require collateral, payday loans are sometimes very expensive.
With payday loans in Nigeria, lenders bear all the risks, and this can cause the total cost of borrowing to spiral.
2. They are considered predatory
Some consider payday loans to be predatory because they target individuals with a low income and bad credit.
While there are lots of other lenders and financial institutions that also do this, payday lenders have earned a bad name for themselves in the past by rigorously pursuing unpaid debts.
3. Debt trap
Failing to repay your payday loan on time could cause you to enter a cycle of debt.
This is a situation where you pay off your debt with your next pay cheque, but then you have to take another loan because you are left with nothing.
It is not hard to see how this could lead to a very difficult situation.
Since payday loans frequently come with very high interest rates attached, they may put borrowers at greater risk of falling into the debt trap.
4. Access to your bank account
Payday lenders want to be sure that you will not default on your repayment. As a result, they require you to grant them access to your bank account using the Central Bank of Nigeria’s (CBN) Direct Debit policy.
This enables them to take recurring or one-off payments directly from your bank account. You can cancel their authority at any time.
Tips to help you stay debt free.
Getting into debt via a payday loan may seem like the convenient thing to do at the moment, but repaying debt can be an uphill task.
However, with the right loan repayment strategies, you can get out and stay debt-free.
Here are some tips to help you through this process.
● Build your emergency fund
Saving up for an emergency fund might be the last thing on your mind when you are in debt.
However, we often fall into debt because unexpected emergencies arise, and there is no financial cushion for it.
You can build your emergency fund even while paying off debt. You just need a lot of discipline and commitment.
Generally, experts recommend that you keep three to six months’ worth of cash stowed away for emergencies in a high-yield savings account.
● Cut off unnecessary expenses
Another possible reason you keep falling into debt is mindless spending.
You might be paying too much for services or unknowingly spending on things you don’t use, causing you to fall into debt.
Regularly review your finances to identify and cut off unnecessary expenses.
● Increase your income
The simple solution to more expenditure is more income. If you truly want to get out of debt, you are going to need more income streams.
Simply put, you might need a side hustle. The good news is that it’s now easier than ever to make money online.
To stay debt-free and meet up with the bills on time, increase your income streams.
● Budget, track your spending
Creating a budget and tracking your spending is one proven way of ensuring that you don’t fall into debt.
The rule is that your budget should give you an allowance to treat yourself.
This keeps you encouraged to stay on track and can reduce the likelihood of falling into debt due to impulsive spending.
● Avoid impulsive spending
Buying things, you didn’t plan for or shopping while you’re emotional can quickly drain your finances.
Try your best to ensure all your purchases are planned for in advance. Even if they weren’t, give yourself time to think about it before going ahead.
Also, be sure not to shop in an emotional state.
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