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Payday loans are short-term loans that do not require an asset as security, or unsecured loan. They are typically taken out to contend with an emergency that requires quick or fast cash.
Payday loans are becoming more and more popular, due to their simplicity and ease of obtaining. As with most things in life, they can be an asset in one situation while being a liability in another. As a smart borrower, prior research and understanding as to their riskiness, affordability and usefulness is key in deciding if they are for you. Your best chance at success is evaluating whether you need one, and if you do, the right one for your needs and circumstances.
What are New Zealand Payday Loans?
Usually, payday loan amounts vary between NZ$100 and NZ$1000, and are therefore considered, small. Similarly, their repayment periods tend to be shorter, typically between a week and a month, i.e. a payday loan is repaid on or before your forthcoming payday. After you take out a payday loan, a direct debit order will be signed by you allowing the provider automatic deduction of the loan principal amount plus fees and interest from your next salary.
It is possible to get an extension on the loan repayment period, although interest will continue to be levied. Additional fees may apply as well. This will, however, make the loan more expensive to you and increase repayment difficulty.
Credit appraisals are not necessary when applying for a payday loan. The lender may well check your credit history but the results of the check will not necessarily have an effect on their decision to grant you the loan or not. This widens the number of people who can access credit, to those undergoing bankruptcies and those with poor credit histories.
How much do payday loans cost?
They can be quite expensive. Most other kinds of loans can be cheaper in comparison. This is due to the interest charged on them being levied every day, on top of additional fees. Usually, a service charge in addition to a loan initiation charge are paid. For example, if you would like to take out a NZ$100 loan, you would be on the hook for a repayment amount of NZ$147. Your repayment amount may not seem that high but while factoring in APR, it amounts to a few hundred percent. On top of this, the repayment period is a lot less, making repayment challenging for some.
What should I look out for?
Due to its high cost nature, extra caution has to be paid with payday loans. In the rare occurrence that one is absolutely necessary, it is okay to take one out. Emergency situations like immediate home repair to avoid you losing your house, for example, is a justifiable reason to acquire one. This will affect your next paycheck in a major way, but you will have forestalled disaster. It might also make it less necessary to take out any other type of loan for that particular situation.
Ordinarily, these type of fast cash loan option should not be considered regularly in devising a monthly budget. Should your monthly spending outpace your monthly income, and you take out regular payday loans, your disposable income will be greatly lowered every subsequent month. This is how dangerous debt cycles are formed, which never ends well.
Your credit history will surely be affected by frequent payday loan delinquencies. Due to this, any other type of credit you apply for down the road may be rejected. Debt collectors may even get involved, in addition to legal proceeding being brought against you. While these may be typical consequences of loan defaulting, payday loans carry a higher fallout. Payday loan extensions further complicate matters, as the cost of the loan to you increases, therefore making it even more difficult to settle up.
What are financial institution payday loans?
During their inception, payday loans were disbursed by local, small providers, but larger financial institutions got involved as time went by, looking to serve this growing, niche market. They had the advantage of offering faster and easier payday loans when compared to their local lender counterparts. They were also more convenient to process than traditional loans, though what remained the same was the level of charges, both in the form of fees and interest. It should not be an expectation that larger lenders offer these personal loans at a cheaper rate to smaller providers, as they do not differ all that much. Repayment schedules and borrowing costs compete with each other.
To make sure payday loan repayment is prompt, large lenders make use of direct debit orders. The difference with smaller providers is the faster nature of the processing, giving you less negotiation flexibility in terms of repayment periods.
Payday loans to not differ much between lenders. As always, wider comparative shopping is the best way to secure the best deal for you. Financial products should always contain easy to understand terms and conditions, offered by a registered, reliable credit partner.
What other choices are there to payday loans?
In times of dire financial need, payday loans can play their part in solving a temporary cash crunch. There are, however, several choices that are open to you. Some of these are
1. Create an emergency kitty
Save some of your income in an emergency fund, for those times when you will need a quick, financial bailout. This fund should be established at a financial institution as opposed to your house, thereby reducing the chances you will dip into it unless completely necessary
2. Take steps in improving your credit standing
The benefits of doing so are a much easier approval process should you require a regular loan later, as well as attracting the lowest possible interest rate charges.
3. Apply for an emergency use only credit card
Lower interest rates and affordable cash withdrawal fees are the benefits of this strategy.
4. In the place of a payday loan, consider a regular loan As part of the loan comparison process, consider other types of loans in the search for the one that best fits your repayment abilities and needs.
5. Look for extra sources of income
Part time jobs over the weekends or evenings can be used to increase your income. This can help bridge any financial shortfalls you may be undergoing. It also means your need to borrow is lessened, reducing your exposure to being mired in debt.
6. Employ debt management solutions towards debt settlement Aim to lower your expenses by negotiating for better loan repayment rates and time frames, easing your burden and leaving you with higher amounts of spending money.
7. Enquire about your bank’s overdraft facilities
These facilities can be used when needed, as the bank automatically exceeds your account’s contents. This means however that you will need to settle with your bank, for a fee.
8. Attempt peer to peer borrowing Private persons can also provide emergency funding, and tend to be less pricey when compared to payday loans.
How does one apply?
Lenders need supporting documentation as well as a completed online loan application form. These are:
- New Zealand ID card, valid
- Pay slips, last 3 months
- Bank account statements, last 3 months
- A utilities bill or bank statement as evidence of address
- A bank account or proof of one, where your salary is deposited
- An email address and a working mobile phone number
Important payday loans information
- Shop around for the best deal, as interest rate charges can vary widely
- Make regular payments as opposed to one large payment. Break it down into manageable chunks that will be easier to repay. For example, on a NZ$1000 payday loan, four payments every week of NZ$250 decreases the outstanding amount, incurring less interest than one NZ$1000 payment at the end of the month.
- Avoid paying later than the agreed date. Some payday loans attract exorbitant fees and charges for late repayment.
For the purposes of emergency funding, payday loans can be beneficial, due to their convenience in acquiring. If you can manage the repayment, they are a perfectly fine method of stop gap funding. Although, they are not a replacement for sound financial planning as they can result in harmful debt cycles.
In summary, payday loans attract hefty interest rate charges, and should be approached with caution. Administration costs and fees can total into sizeable sums – including some lenders who charge you every time you are directly debited. There are other financial instruments you could facilitate in place of payday loans, and you should look into the various ones in search of an alternative. Remember, your credit report will reflect any payday loan you have ever taken out, alerting other lenders to your possible creditworthiness.
Should you find yourself unable to repay your payday loan for whatever reason, contact the lender immediately and explain the circumstances surrounding your not being able to pay. Options range from payment readjustments, either giving you more time or restructuring the payment amounts. As long as you show reasonable cause for not being able to repay, such as dissolution of a relationship, end of a work contract, injury or illness, you might be extended an interest freeze or repayment holiday to allow you to overcome your predicament.