How to Properly Utilize Payday Loans
by
William B
Payday loans have gotten a bad reputation in the loan industry for many reasons. However, a lot of these reasons are not very fair to the businesses that offer payday loans themselves. While it is true that payday loans can lead to greater and greater financial problems if they are used incorrectly, this is no different than any other financial tool. Credit cards, bank loans, and other financial tools can also be harmful if they are not used responsibly, and payday loans are no different.
Therefore, it may be healthier to examine how one should properly utilize payday loans, rather than vilifying the entire practice as predatory. Remember, as with all tools, there is a right and a wrong way to approach payday loans. In this article, we will focus on the correct way of using them.
The first thing that you must understand is that payday loans are not designed to be a long-term funding source. Rather, they are intended just as their name suggests: they are supposed to just help you get by until your payday. Contrast this purpose with something like a long-term loan, which is designed to be paid back over a substantial period of time. That is not the purpose of a payday loan.
As such, the APR of a payday loan is much, much higher than that of a bank loan that you might get for a house, a car, or other expenses. However, to focus on the APR is rather inappropriate, because you are not supposed to take out a payday loan for a year. You are simply intended to take one out if you need it, then pay it back.
Payday loans, then, are best used for minor emergencies that often come up during life. Perhaps you had a flat tire on your car. Maybe you had another type of unforeseen expense creep up on you. Regardless, the intent is that you will only need an advance on your paycheck. The intent of a payday loan is not that you continue to take payday loans out, paycheck after paycheck with dwindling hopes of paying them back.
Think about it this way: if you went to a friend and asked for a little money to help out until your next payday, you would not pay them back on your payday, then immediately ask for a new, bigger loan until the following payday. That would seem silly to both you and your friend, right? If you think about payday loans in the same way, you can see that they are intended to be used in the same way. If you will not be able to pay back your loan for good without taking out subsequent loans, you should be looking for another source of financial assistance, instead.
Many companies that offer payday loans also offer longer-term, lower-interest percentage loans that may be more appropriate for other situations. Make sure that you are using a payday loan for the right reasons, and take the obligation to pay back your creditor seriously.
Like many different financial tools, there is nothing necessarily wrong with payday loans themselves. They can help you out in the right situation. However, if you do not use them correctly, you can find yourself in bigger trouble than you started out with. For that reason, it is very important to keep in mind the purpose of payday loans and not abuse them irresponsibly. Even the company that issues you the loan would rather see you pay it back then have to eventually hound you for
collections
of a past due debt, so borrow responsibly.
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