How much can I borrow, and how much should I borrow?

Money borrowers often wonder about how much they should finance? They worry about fulfilling immediate concerns, and then they begin to think about other things on which they could use the money. Suddenly, they have a list of essentials. And instead of buying exactly what they needed, they borrow the maximum allowable amount. While this may be fine for people who can readily pay down their debt, or maybe someone refinancing a mortgage, the same may not be said of payday loans. The short-term nature of the loans means that they are high interest, and makes for risky circumstances. Before applying for a payday loan, ask yourself these questions. How much can I borrow? And how much should I borrow?

Indeed, the largest and most costly trap of payday loans is the service charges. Remember that these fees might include verification fees, administration fees, late payment fees, and NSF charges if your post-dated checks or pre-authorized debits do not clear the bank. What seemed like a small amount in the beginning will quickly and exorbitantly grow to a major debt. It is for this reason that the amount you initially borrow is significant. Ideally, if you must resort to using payday loans, borrow the most minimum amount possible, and pay it off on the date chosen. Do not over extend yourself by taking the legal amount dictated by the state or the amount allowed from the payday loans store. It is the refinancing and the continual use of these services that sends borrowers into downward spirals. Remember that if you do not have the money today, you do not have it fourteen days from now. You would be starting your next pay schedule in more debt. So, if your next paycheck was earmarked for food or rent, now you are in some serious trouble.

As a general rule, borrow only what you need to cover your immediate emergency. Plus, if you would not have spent the said amount with your next paycheck, then why would you borrow that amount and agree to pay it back? Let's explain through a specific scenario.

• Your car breaks down on payday. It will take $500 to repair and your paycheck is $525. Would you take the whole paycheck to pay for your car or would you find alternative transportation until you have the money? If you would not touch the whole amount of your paycheck, then you have your own answer as to what you should do. You should only borrow the amount you would take from the available cash.

• Now let's say the car breaks down during a pay period. You have no money in the bank and you have no way to pay for repairs. So you go down to the payday loan store and borrow $500 agreeing to repay the loan when your paycheck arrives. This is not a logical decision. You wouldn't have spent your paycheck on the car if you had it in hand, so why would you secure a loan with that same paycheck?

Fortunately, to help borrowers prevent such dire financial consequences caused by over-indebtedness from using payday loans, many states have enacted borrowing maximums. While many companies advertise that consumers can borrow as much as fifteen hundred dollars, they cannot issue more than the state mandated limit. To determine your allowable limit, you should contact a local government office before applying for a payday loan.