The first and most important advice about payday borrowing: don’t do it. It’s like taking out an adjustable-rate mortgage where the rate goes sky-high… except not in five years, but tomorrow.
Having made that point, there are obviously situations where people find themselves so cash-strapped that they have no choice but to to go to the legally sanctioned version of a loan shark. If you can’t feed your kids, or the landlord is about to evict you, it probably is a good idea to get the loan.
So, let’s say you’ve embarked on this financial kamikaze mission, you’ve sold your soul and you still can’t make ends meet, and you find that “Payday Loans” sign at the corner so tempting, here’s what you do:
COME UP WITH A PLAN
The first and most important thing is that you cannot take out this loan scared. The whole point of a payday loan is to rob you blind, so you have to go into the lender’s office with a plan for how to take this loan out, pay it back completely when you get your paycheck, and never set foot in that office again. If you can’t come up with a realistic plan for how to do that, my advice is that you go in and borrow as much as they’ll let you, and then run up huge bills on your credit cards buying canned food. You should do that because rolling over payday loans from one paycheck to the next inevitably leads to bankruptcy, and you want to be going into bankruptcy with food in the pantry and cash in your wallet.
COMPARE RATES, FEES, AND FINES
So, you’ve come up with your plan, and you can pay off the loan. Now to the actual borrowing: Like any business, the payday lending business involves competitions. Some places will give you a discount if you have a respectable credit history, others will set their rates based on your weekly pay. All of their loans will have adjustable rates (and yes, they only adjust up), and there will be vicious penalties for late payments. Make the lender put everything in writing, and make sure that you’ve read every word of it. If you don’t understand something, make them explain it to you – and make them put the explanation in writing, and have them sign the explanation. (I’m assuming you can’t afford a lawyer to explain it to you, if you’re taking out payday loans.)
BITE THE BULLET
Make sure you ask for the smallest loan you possibly can, and then do it. Bite the bullet, and take out the loan. Pay it off as quickly as you can, but feel good that there will be food on the table tonight, and that you’ll be paying your mortgage on time. And pray to God that you’ll never have to take out another payday loan.