Payday Loans – The Good, The Bad, The Ugly
Payday loans have been around for quite some time. Their purpose is to provide temporary relief until payday for people that have emergency financial situations. Typically, you hear that you should avoid payday loans at all cost. While for myself this would hold true, for others they may be very useful. Let’s break down the good, the bad and the ugly with payday loans
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Payday Loans: The Good
Sometimes, you’re in a pinch and need additional funds to cover a bill (i.e. rent). If you have nothing to pawn, how do you go about getting money to pay for these bills? The answer in short: payday loans. They can be good for you in a number of situations. They are as follows:
- You get paid that week but have a major bill that is due immediately
- You’re about to run out of money and overdraft your accounts
- An auto or home repair is necessary and will get worse in time
- A medical emergency is taking place and you need to pay out-of-pocket cost
These situations generally are the only ones that we feel would warrant a payday loan. It is very enticing to apply for for one in other circumstances, but we will discuss why you should avoid them in a lot of other cases.
Payday Loans: The Bad
While it is fairly easy to obtain a payday loan, you should not simply apply for one just because one is available. It’s nice having money in your pocket, but it will be at a cost. Here are a few situations that you should avoid getting a payday loan for:
- Down payment on any type of loan
- Goods or services that are priced beyond what you can afford
- Bills that are not pressing and do not hurt your credit
- Anything and everything related to vacations and gambling
- Simply having more money in your bank account
If you’re spending money from a payday loan on any of the previously mentioned items in our list, stop. re-evaluate what you’ve done and store the money away as soon as possible. In most cases, these loans are at the peak of all peaks when it comes to interest rates, and the “weekly” or “bi-weekly” payment being made will only address the interest on the amount borrowed, and not the principal (the actual money that was borrowed). What that means is your money is only going towards the interest charges generated from the amount of money owed, and not actually reducing the amount of money owed.
Payday Loans: The Ugly
If we’re in a pinch, and we take out a loan to cover bills while in a pinch but leave the root cause unaddressed (meaning we didn’t fix the reason why we got in the pinch in the first place), we are setting ourself up for disaster. With some types of payday loans, you are required to put up some type of collateral for the cash advance. This can range from simply consumer electronics, to the title of your vehicle. So what happens if you miss those payments on your loan? You guessed it: The loan company takes possession of the collateral until you’re either caught up or pay off the balance in full. That means they can potentially take your car. Now you’re in an even bigger pinch!
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Pay Attention To Detail
If you absolutely must take out a payday loan, pay attention to detail. Be sure to look at the fine print. Make sure payments aren’t interest-loaded. Keep collateral credit based instead of using possessions such as your car or other possessions. Don’t put yourself in an even bigger pinch than what led you to consider taking out the payday loan in the first place.
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