People often say that payday loans are a quick way to fix a bad financial situation because they can help you get by until your next paycheck or salary. The basic idea is that you can borrow a small amount, like a few hundred dollars, for a week or two and pay it back when you get paid again.
This kind of service can be very helpful if you don't have enough money for living expenses or if you get a bill or expense you didn't expect and can't pay when you need to. However, are payday loans always the best choice?
First, we'll talk about the benefits of these loans that can't be argued with. Then, we'll talk about the cons and possible alternatives you could use if you decide a payday loan isn't right for you.
Payday loans have very loose lending requirements, and almost anyone who has a job and a good bank account will likely be approved. This means that even people with bad credit should be able to get a payday loan, even though they would be turned down for almost every other type of loan.
They are also easy to set up, and the money can usually be in your account within a few days. Some lenders can even set up an overnight transfer of the loan so that it goes right into your account the next day. This is very helpful if you need cash quickly.
Lastly, once you've been approved for your first loan, it's usually very easy to "refresh" it if you need to use it again if you run out of money again in the future.
There are, however, two big problems with payday loans that are rarely talked about in ads and on websites that promote them. First, they cost a lot compared to other ways to get credit. Due to the short length of the loan, a fee of 20% of the amount you borrow, which is about average, will result in an APR that will make your eyes water.
The second problem is related to the first. Because they are so expensive, you might not have enough money the following month after you've paid off the loan and the fee. In this case, it's just too easy to get a new loan to cover the shortfall, which means you'll have to pay more fees and keep borrowing money.
So, what other options do you have if you decide that a payday loan isn't right for you? The first is, if you have one, to use a credit card. Even though credit cards are usually pretty expensive ways to get money, they do let you pay off the debt over a number of months instead of all at once and with a fee.
Many bank accounts now have an option to go overdrawn, which can also be used to make up for a short-term lack of cash. The interest rate on an agreed overdraft is likely to be lower than that on a credit card, but your bank may not approve your application. Don't go ahead and overdraw your account without your bank's permission. The fees they will charge you will be very high.
If you can't do either of these things and have no other way to get money, like borrowing from family, a payday loan may be your best option. Just make sure you use it right and pay attention to the warnings it gives you about your finances in the long run.
