What is a Payday Loan and Why You Should Not Get One

March 21, 2019
Once in a while, everybody falls short of a few dollars. Some might consider applying for a payday loan. But what exactly is a payday loan, and is it to your advantage to get one?
What is a Payday Loan and Why You Should Not Get One

What Is a Payday Loan?

A payday loan is a short-term loan that must be repaid in full, plus interest, by your next payday. Payday loan requests are made at a payday loan store. Some payday lenders also let you apply online. No credit check is made. You need to have a job with a regular income to be eligible.

Why Are Payday Loans a Bad Idea?

So why are payday loans a bad idea? While the no credit check part might appeal to some, they get you caught up in an endless wheel of debts.

Here is a quick example to illustrate. You’re short on money. You had some unexpected expenses, and now you need a cash advance to get you to your next paycheck. You get a payday loan. Now you have the money you need, but you have to repay it all, plus interest, on your next payday. What happens when your paycheck comes in? It all goes to repay your loan and you have next to nothing left. How will you survive until your next paycheck? Chances are you’ll get another payday loan to get you to your next paycheck, and on and on it goes.

Do you see the risks associated with payday loans?

What Options Do You Have?

If payday loans are out of the picture, then what other options do you have? When you have bad credit, your alternatives are limited, but they do exist.

Ask your financial institution about their various credit solutions. A credit card might be just the thing for you. It gives you the cash advance you need, and if you pay it back before the 21-day interest-free period, you pay no interest, which means you lose no money. Getting overdraft protection can also be a good option to help you get through to your next paycheck.

Online loans and payday loans often get mixed up. Although they are similar, there is one big difference. Online lenders do not require you to repay the whole loan by your next payday. You have between three and four months to reimburse the loan, which gives you the breathing space you need to pay your debt and continue functioning normally at the same time.

Close friends or family members are often willing to help, especially if this is an exceptional occurrence. Make sure to put any agreement in writing and have both parties sign the document. Agree on a repayment schedule and stick to it if you want to keep your relationship intact.

What Is the Best Option?

There are plenty of other options, like doing overtime, getting a second job or selling some of your possessions to get extra money. There is no one option better than another. Everybody has different situations, and the best option for one might not be helpful to another. It is up to you to analyze various solutions and find the one best suited to your needs. Once you get back on your feet, you might consider building an emergency fund because, in the end, that is the best option for anyone.