Keeping a budget can be a challenging thing for a lot of people, especially when expenses pop up that you didn’t expect, such as a blown tire, a medical expense, or a new PC to replace your crashed computer. Some expenses just can’t wait, and for those who don’t have credit cards or don’t want to use them, payday loans may be the answer.
There are many different companies that provide payday loans. These lenders look at what your typical paychecks provide and lend you enough money to make sure you can make it through until payday, while assuring you’ll have enough money in your check to pay them back. They are the ultimate short term loan, a version of asking your mom, brother, or buddy to spot you till you get your check– only without the personal connection and most likely with more interest. This can be good or bad. Here are some pros and cons of payday loans.
Pros of Payday Loans
One of the biggest benefits of payday loans is that they are not personal, so you will never have to worry about owing a friend or relative for the loan, not only in money but in others ways as well. Another upside is that the terms are normally clear, if you take the time to look at them. You can also get these loans without a credit check, which could adversely affect your credit rating, and as long as you have proof of income you can’t be turned down.
But there are also negative things about payday loans, and a lot of the blanket warnings you may have heard are true. If they are not used responsibly, payday loans can lead you into a bigger bind than ever.
Cons of Payday Loans
Many of the drawbacks of payday loans are things more people have heard of, the first being the interest. You may borrow $200 and have to pay back $250. This can really tighten a budget until the payday after that. Many people have gotten themselves into a bind because of the continuous loop this can create, as they pay back a payday loan only to immediately take out another one.
Because they don’t require a credit check, payday loans attract those who find being financially responsible a challenge and the lenders end up making a lot of money off interest at the expense of those who just can’t seem to catch up.
Taking Precautions
If you do decide to take advantage of a payday loan, there are precautions you should take in order to prevent yourself from entering a loop of debt that comes from repeatedly using this method to bail you out.
You need to either find a way to re-budget so that the budget for your next paycheck will cover your expenses, without using a payday loan again or increase your income. Some people find something in their home to sell online or pick up a few hours of overtime at work if they can’t actually tighten their budget. By doing this you can use payday loans only occasionally and avoid many of the negative consequences.
About the Author
James Pattrick is known for writing informative articles on finance and related issues.
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